Were Hedge Funds Right About Selling The Bank of New York Mellon Corporation (BK)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards The Bank of New York Mellon Corporation (NYSE:BK) and determine whether hedge funds skillfully traded this stock.

Is The Bank of New York Mellon Corporation (NYSE:BK) a healthy stock for your portfolio? The smart money was becoming less hopeful. The number of long hedge fund bets shrunk by 6 lately. Our calculations also showed that BK isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the eyes of most shareholders, hedge funds are viewed as underperforming, old investment tools of years past. While there are more than 8000 funds trading at present, We look at the upper echelon of this club, approximately 850 funds. These hedge fund managers orchestrate bulk of all hedge funds’ total asset base, and by watching their inimitable investments, Insider Monkey has unsheathed several investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the new hedge fund action regarding The Bank of New York Mellon Corporation (NYSE:BK).

What have hedge funds been doing with The Bank of New York Mellon Corporation (NYSE:BK)?

At the end of the first quarter, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. By comparison, 36 hedge funds held shares or bullish call options in BK a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the number one position in The Bank of New York Mellon Corporation (NYSE:BK), worth close to $2.6865 billion, corresponding to 1.5% of its total 13F portfolio. On Berkshire Hathaway’s heels is Trian Partners, led by Nelson Peltz, holding a $326.7 million position; the fund has 4.7% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism contain Ken Griffin’s Citadel Investment Group, D. E. Shaw’s D E Shaw and Donald Yacktman’s Yacktman Asset Management. In terms of the portfolio weights assigned to each position Prana Capital Management allocated the biggest weight to The Bank of New York Mellon Corporation (NYSE:BK), around 10.52% of its 13F portfolio. LFL Advisers is also relatively very bullish on the stock, designating 9.13 percent of its 13F equity portfolio to BK.

Seeing as The Bank of New York Mellon Corporation (NYSE:BK) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds who were dropping their positions entirely heading into Q4. At the top of the heap, Ravi Chopra’s Azora Capital cut the biggest investment of the 750 funds followed by Insider Monkey, valued at an estimated $18.4 million in stock, and  Renaissance Technologies was right behind this move, as the fund dropped about $13.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 6 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Bank of New York Mellon Corporation (NYSE:BK) but similarly valued. We will take a look at Mizuho Financial Group Inc. (NYSE:MFG), Dell Technologies Inc. (NYSE:DELL), Emerson Electric Co. (NYSE:EMR), and The Allstate Corporation (NYSE:ALL). This group of stocks’ market values are similar to BK’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $990 million. That figure was $4402 million in BK’s case. The Allstate Corporation (NYSE:ALL) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks The Bank of New York Mellon Corporation (NYSE:BK) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately BK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BK were disappointed as the stock returned 15.8% during the second 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 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.