Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in The Bank of Nova Scotia (NYSE:BNS)? The smart money sentiment can provide an answer to this question.
The Bank of Nova Scotia (NYSE:BNS) has experienced a decrease in enthusiasm from smart money lately. BNS was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. There were 16 hedge funds in our database with BNS positions at the end of the previous quarter. Our calculations also showed that BNS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ray Dalio of Bridgewater Associates
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the fresh hedge fund action regarding The Bank of Nova Scotia (NYSE:BNS).
Hedge fund activity in The Bank of Nova Scotia (NYSE:BNS)
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in BNS over the last 17 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in The Bank of Nova Scotia (NYSE:BNS) was held by Citadel Investment Group, which reported holding $281.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $261 million position. Other investors bullish on the company included GLG Partners, Two Sigma Advisors, and Bridgewater Associates. In terms of the portfolio weights assigned to each position Fairfax Financial Holdings allocated the biggest weight to The Bank of Nova Scotia (NYSE:BNS), around 0.65% of its 13F portfolio. Waratah Capital Advisors is also relatively very bullish on the stock, designating 0.4 percent of its 13F equity portfolio to BNS.
Because The Bank of Nova Scotia (NYSE:BNS) has witnessed a decline in interest from the smart money, we can see that there exists a select few hedgies who were dropping their positions entirely in the third quarter. It’s worth mentioning that Alec Litowitz and Ross Laser’s Magnetar Capital cut the biggest investment of the 750 funds tracked by Insider Monkey, comprising close to $1 million in stock, and David Andre and Astro Teller’s Cerebellum Capital was right behind this move, as the fund dumped about $0.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to The Bank of Nova Scotia (NYSE:BNS). These stocks are BlackRock, Inc. (NYSE:BLK), Intuit Inc. (NASDAQ:INTU), Westpac Banking Corporation (NYSE:WBK), and Becton, Dickinson and Company (NYSE:BDX). This group of stocks’ market values are closest to BNS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BLK | 42 | 1040933 | -1 |
| INTU | 47 | 2011283 | 1 |
| WBK | 4 | 42624 | 1 |
| BDX | 44 | 1159555 | 4 |
| Average | 34.25 | 1063599 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1064 million. That figure was $678 million in BNS’s case. Intuit Inc. (NASDAQ:INTU) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 4 bullish hedge fund positions. The Bank of Nova Scotia (NYSE:BNS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BNS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BNS investors were disappointed as the stock returned -1.3% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
