We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Synchrony Financial (NYSE:SYF).
Is Synchrony Financial (NYSE:SYF) undervalued? Prominent investors were becoming more confident. The number of bullish hedge fund bets moved up by 9 lately. Synchrony Financial (NYSE:SYF) was in 46 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 82. Our calculations also showed that SYF 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). There were 37 hedge funds in our database with SYF holdings at the end of March.
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.
Paul Reeder of PAR Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a glance at the latest hedge fund action regarding Synchrony Financial (NYSE:SYF).
What have hedge funds been doing with Synchrony Financial (NYSE:SYF)?
At the end of the second quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SYF over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Berkshire Hathaway, managed by Warren Buffett, holds the most valuable position in Synchrony Financial (NYSE:SYF). Berkshire Hathaway has a $446 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Southpoint Capital Advisors, managed by John Smith Clark, which holds a $221.6 million position; the fund has 5.4% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Paul Reeder and Edward Shapiro’s PAR Capital Management, Parag Vora’s HG Vora Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to Synchrony Financial (NYSE:SYF), around 8.47% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, earmarking 5.53 percent of its 13F equity portfolio to SYF.
Consequently, key money managers were breaking ground themselves. HG Vora Capital Management, managed by Parag Vora, created the most valuable position in Synchrony Financial (NYSE:SYF). HG Vora Capital Management had $94.2 million invested in the company at the end of the quarter. Scott Ferguson’s Sachem Head Capital also initiated a $73.1 million position during the quarter. The following funds were also among the new SYF investors: Brandon Haley’s Holocene Advisors, Dmitry Balyasny’s Balyasny Asset Management, and Anand Parekh’s Alyeska Investment Group.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Synchrony Financial (NYSE:SYF) but similarly valued. These stocks are FMC Corporation (NYSE:FMC), Galapagos NV (NASDAQ:GLPG), Martin Marietta Materials, Inc. (NYSE:MLM), Carnival Corporation & Plc (NYSE:CCL), Zillow Group Inc (NASDAQ:Z), Markel Corporation (NYSE:MKL), and SK Telecom Co., Ltd. (NYSE:SKM). This group of stocks’ market values match SYF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FMC | 42 | 548601 | 3 |
| GLPG | 13 | 151392 | -2 |
| MLM | 51 | 1593527 | 7 |
| CCL | 31 | 362150 | 0 |
| Z | 59 | 2299780 | 22 |
| MKL | 33 | 943795 | 1 |
| SKM | 8 | 129598 | 3 |
| Average | 33.9 | 861263 | 4.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $861 million. That figure was $1564 million in SYF’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 8 bullish hedge fund positions. Synchrony Financial (NYSE:SYF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SYF is 64.1. 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. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on SYF as the stock returned 26.4% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
