How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Synchrony Financial (NYSE:SYF).
Synchrony Financial (NYSE:SYF) investors should pay attention to a decrease in hedge fund sentiment in recent months. Synchrony Financial (NYSE:SYF) was in 49 hedge funds’ portfolios at the end of March. The all time high for this statistic is 82. Our calculations also showed that SYF isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 115 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.
Mark Kingdon of Kingdon Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 homepage. Now we’re going to check out the key hedge fund action regarding Synchrony Financial (NYSE:SYF).
Do Hedge Funds Think SYF Is A Good Stock To Buy Now?
At Q1’s end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SYF over the last 23 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Synchrony Financial (NYSE:SYF) was held by Arrowstreet Capital, which reported holding $363 million worth of stock at the end of December. It was followed by PAR Capital Management with a $300.9 million position. Other investors bullish on the company included Southpoint Capital Advisors, D E Shaw, and Sachem Head Capital. In terms of the portfolio weights assigned to each position PAR Capital Management allocated the biggest weight to Synchrony Financial (NYSE:SYF), around 6.97% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, designating 5.97 percent of its 13F equity portfolio to SYF.
Judging by the fact that Synchrony Financial (NYSE:SYF) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedge funds that elected to cut their positions entirely heading into Q2. It’s worth mentioning that Warren Buffett’s Berkshire Hathaway said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $698.6 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund said goodbye to about $47.7 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds heading into Q2.
Let’s also examine hedge fund activity in other stocks similar to Synchrony Financial (NYSE:SYF). These stocks are Coca-Cola Europacific Partners plc (NYSE:CCEP), Realty Income Corporation (NYSE:O), Slack Technologies Inc (NYSE:WORK), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), CDW Corporation (NASDAQ:CDW), Zscaler, Inc. (NASDAQ:ZS), and PG&E Corporation (NYSE:PCG). 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 |
|---|---|---|---|
| CCEP | 25 | 1110385 | -3 |
| O | 18 | 183624 | -6 |
| WORK | 60 | 4262404 | -6 |
| TLK | 4 | 158462 | 0 |
| CDW | 30 | 1908866 | -13 |
| ZS | 34 | 809507 | -1 |
| PCG | 65 | 5665287 | -1 |
| Average | 33.7 | 2014076 | -4.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $2014 million. That figure was $1862 million in SYF’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 4 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 58.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on SYF as the stock returned 14% since the end of Q1 (through 6/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Synchrony Financial (NYSE:SYF)
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Disclosure: None. This article was originally published at Insider Monkey.
