Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Synchrony Financial (NYSE:SYF) and compare its performance to hedge funds’ consensus picks in 2019.
Synchrony Financial (NYSE:SYF) has seen a decrease in hedge fund sentiment lately. SYF was in 43 hedge funds’ portfolios at the end of the third quarter of 2019. There were 46 hedge funds in our database with SYF positions at the end of the previous quarter. Our calculations also showed that SYF 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).
Why do we pay any attention at all to hedge fund sentiment? 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.
Warren Buffett of Berkshire Hathaway
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. Now we’re going to view the recent hedge fund action surrounding Synchrony Financial (NYSE:SYF).
How have hedgies been trading Synchrony Financial (NYSE:SYF)?
At Q3’s end, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SYF over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in Synchrony Financial (NYSE:SYF), which was worth $709.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $551.5 million worth of shares. Arrowstreet Capital, Baupost Group, and Point72 Asset 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 Billings Capital Management allocated the biggest weight to Synchrony Financial (NYSE:SYF), around 17.9% of its 13F portfolio. Southpoint Capital Advisors is also relatively very bullish on the stock, designating 2.58 percent of its 13F equity portfolio to SYF.
Due to the fact that Synchrony Financial (NYSE:SYF) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies who sold off their entire stakes in the third quarter. Intriguingly, David Harding’s Winton Capital Management cut the biggest position of the 750 funds tracked by Insider Monkey, comprising close to $22.9 million in stock. Ravi Chopra’s fund, Azora Capital, also dropped its stock, about $21.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Synchrony Financial (NYSE:SYF) but similarly valued. These stocks are Veeva Systems Inc (NYSE:VEEV), American Water Works Company, Inc. (NYSE:AWK), Aptiv PLC (NYSE:APTV), and Verisign, Inc. (NASDAQ:VRSN). This group of stocks’ market values are similar to SYF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VEEV | 33 | 1020379 | -2 |
| AWK | 35 | 652077 | 12 |
| APTV | 27 | 887545 | 1 |
| VRSN | 30 | 5568484 | -2 |
| Average | 31.25 | 2032121 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $2032 million. That figure was $2375 million in SYF’s case. American Water Works Company, Inc. (NYSE:AWK) is the most popular stock in this table. On the other hand Aptiv PLC (NYSE:APTV) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Synchrony Financial (NYSE:SYF) is more popular among hedge funds. 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 SYF as the stock returned 58.9% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
