Were Hedge Funds Right About State Street Corporation (STT)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to State Street Corporation (NYSE:STT) changed recently.

State Street Corporation (NYSE:STT) was in 36 hedge funds’ portfolios at the end of June. The all time high for this statistics is 45. STT shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. There were 34 hedge funds in our database with STT positions at the end of the first quarter. Our calculations also showed that STT 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 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 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.

Michael Gelband of ExodusPoint Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging 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 gander at the key hedge fund action encompassing State Street Corporation (NYSE:STT).

What does smart money think about State Street Corporation (NYSE:STT)?

At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STT over the last 20 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Yacktman Asset Management, managed by Donald Yacktman, holds the most valuable position in State Street Corporation (NYSE:STT). Yacktman Asset Management has a $216.3 million position in the stock, comprising 3.4% of its 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $196.4 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions consist of Mario Gabelli’s GAMCO Investors, Phill Gross and Robert Atchinson’s Adage Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Gillson Capital allocated the biggest weight to State Street Corporation (NYSE:STT), around 3.76% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, designating 3.45 percent of its 13F equity portfolio to STT.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, created the most outsized position in State Street Corporation (NYSE:STT). Holocene Advisors had $24.1 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also initiated a $8.5 million position during the quarter. The other funds with new positions in the stock are Stuart J. Zimmer’s Zimmer Partners, Michael Gelband’s ExodusPoint Capital, and Parvinder Thiara’s Athanor Capital.

Let’s now take a look at hedge fund activity in other stocks similar to State Street Corporation (NYSE:STT). These stocks are BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Fortinet Inc (NASDAQ:FTNT), Archer Daniels Midland Company (NYSE:ADM), Palo Alto Networks Inc (NYSE:PANW), Genmab A/S (NASDAQ:GMAB), Dollar Tree, Inc. (NASDAQ:DLTR), and LyondellBasell Industries NV (NYSE:LYB). This group of stocks’ market values resemble STT’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.3 hedge funds with bullish positions and the average amount invested in these stocks was $1577 million. That figure was $668 million in STT’s case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 15 bullish hedge fund positions. State Street Corporation (NYSE:STT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for STT is 54.3. 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 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately STT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); STT investors were disappointed as the stock returned -6.5% since the end of June (through 10/30) 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.