Should I Buy Northern Trust Corporation (NTRS)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Northern Trust Corporation (NASDAQ:NTRS) and determine whether the smart money was really smart about this stock.

Is Northern Trust Corporation (NASDAQ:NTRS) a buy, sell, or hold? Prominent investors were taking a bullish view. The number of long hedge fund bets went up by 8 recently. Northern Trust Corporation (NASDAQ:NTRS) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 37. Our calculations also showed that NTRS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to go over the recent hedge fund action encompassing Northern Trust Corporation (NASDAQ:NTRS).

Hedge fund activity in Northern Trust Corporation (NASDAQ:NTRS)

Heading into the third quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NTRS over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Ariel Investments was the largest shareholder of Northern Trust Corporation (NASDAQ:NTRS), with a stake worth $143.5 million reported as of the end of September. Trailing Ariel Investments was Marshall Wace LLP, which amassed a stake valued at $46.1 million. Citadel Investment Group, Millennium Management, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Fairpointe Capital allocated the biggest weight to Northern Trust Corporation (NASDAQ:NTRS), around 2.81% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, earmarking 2.19 percent of its 13F equity portfolio to NTRS.

As industrywide interest jumped, some big names were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, created the biggest position in Northern Trust Corporation (NASDAQ:NTRS). Alyeska Investment Group had $28.4 million invested in the company at the end of the quarter. Thyra Zerhusen’s Fairpointe Capital also made a $19.3 million investment in the stock during the quarter. The following funds were also among the new NTRS investors: Seth Cogswell’s Running Oak Capital, Greg Eisner’s Engineers Gate Manager, and David Rodriguez-Fraile’s BlueMar Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Northern Trust Corporation (NASDAQ:NTRS) but similarly valued. We will take a look at Restaurant Brands International Inc (NYSE:QSR), Yandex NV (NASDAQ:YNDX), Peloton Interactive, Inc. (NASDAQ:PTON), CGI Inc. (NYSE:GIB), Fox Corporation (NASDAQ:FOX), Fox Corporation (NASDAQ:FOXA), and Maxim Integrated Products Inc. (NASDAQ:MXIM). This group of stocks’ market valuations resemble NTRS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1306 million. That figure was $450 million in NTRS’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand CGI Inc. (NYSE:GIB) is the least popular one with only 19 bullish hedge fund positions. Northern Trust Corporation (NASDAQ:NTRS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NTRS is 64.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately NTRS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NTRS investors were disappointed as the stock returned 3.2% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.