We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Synovus Financial Corp. (NYSE:SNV) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Synovus Financial Corp. (NYSE:SNV) has experienced a decrease in hedge fund interest recently. Our calculations also showed that SNV isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the key hedge fund action regarding Synovus Financial Corp. (NYSE:SNV).
How have hedgies been trading Synovus Financial Corp. (NYSE:SNV)?
At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SNV over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Synovus Financial Corp. (NYSE:SNV). Citadel Investment Group has a $144.3 million position in the stock, comprising 0.1% of its 13F portfolio. On Citadel Investment Group’s heels is Millennium Management, managed by Israel Englander, which holds a $99.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompass Emanuel J. Friedman’s EJF Capital, Dmitry Balyasny’s Balyasny Asset Management and Richard S. Pzena’s Pzena Investment Management. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to Synovus Financial Corp. (NYSE:SNV), around 8.34% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, setting aside 4.41 percent of its 13F equity portfolio to SNV.
Because Synovus Financial Corp. (NYSE:SNV) has witnessed falling interest from hedge fund managers, it’s easy to see that there was a specific group of fund managers who sold off their positions entirely heading into Q4. Intriguingly, Ravi Chopra’s Azora Capital said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, valued at about $39.2 million in stock. Usman Waheed’s fund, Strycker View Capital, also sold off its stock, about $11.6 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to Synovus Financial Corp. (NYSE:SNV). These stocks are Harley-Davidson, Inc. (NYSE:HOG), OneMain Holdings Inc (NYSE:OMF), Penumbra Inc (NYSE:PEN), and WPX Energy Inc (NYSE:WPX). This group of stocks’ market values resemble SNV’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HOG | 19 | 104510 | -2 |
| OMF | 39 | 529947 | 10 |
| PEN | 30 | 308085 | 5 |
| WPX | 44 | 746371 | -3 |
| Average | 33 | 422228 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $422 million. That figure was $692 million in SNV’s case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand Harley-Davidson, Inc. (NYSE:HOG) is the least popular one with only 19 bullish hedge fund positions. Synovus Financial Corp. (NYSE:SNV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SNV wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SNV were disappointed as the stock returned -59.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
