Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to SVB Financial Group (NASDAQ:SIVB) changed recently.
Is SVB Financial Group (NASDAQ:SIVB) going to take off soon? Prominent investors are taking a bullish view. The number of long hedge fund positions went up by 13 in recent months. Our calculations also showed that SIVB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a look at the key hedge fund action surrounding SVB Financial Group (NASDAQ:SIVB).
How are hedge funds trading SVB Financial Group (NASDAQ:SIVB)?
At Q3’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SIVB over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in SVB Financial Group (NASDAQ:SIVB) was held by Fisher Asset Management, which reported holding $210.4 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $86.7 million position. Other investors bullish on the company included AQR Capital Management, Two Sigma Advisors, and Millennium Management. In terms of the portfolio weights assigned to each position Spindletop Capital allocated the biggest weight to SVB Financial Group (NASDAQ:SIVB), around 13.64% of its 13F portfolio. Passport Capital is also relatively very bullish on the stock, dishing out 8.03 percent of its 13F equity portfolio to SIVB.
Now, key money managers were leading the bulls’ herd. Portolan Capital Management, managed by George McCabe, assembled the largest position in SVB Financial Group (NASDAQ:SIVB). Portolan Capital Management had $11.3 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $9.4 million investment in the stock during the quarter. The following funds were also among the new SIVB investors: Renaissance Technologies, John Burbank’s Passport Capital, and David E. Shaw’s D E Shaw.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as SVB Financial Group (NASDAQ:SIVB) but similarly valued. We will take a look at Aramark (NYSE:ARMK), Camden Property Trust (NYSE:CPT), Noble Energy, Inc. (NYSE:NBL), and CF Industries Holdings, Inc. (NYSE:CF). This group of stocks’ market valuations resemble SIVB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARMK | 35 | 1297465 | -1 |
| CPT | 20 | 316246 | 1 |
| NBL | 28 | 602859 | 3 |
| CF | 39 | 956283 | 4 |
| Average | 30.5 | 793213 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $793 million. That figure was $597 million in SIVB’s case. CF Industries Holdings, Inc. (NYSE:CF) is the most popular stock in this table. On the other hand Camden Property Trust (NYSE:CPT) is the least popular one with only 20 bullish hedge fund positions. SVB Financial Group (NASDAQ:SIVB) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on SIVB, though not to the same extent, as the stock returned 32.8% during 2019 (as of 12/23) and outperformed the market as well.
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.
