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2019 Review: Top Hedge Fund Stocks vs. M&T Bank Corporation (MTB)

Reymerlyn Martin

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 M&T Bank Corporation (NYSE:MTB) and compare its performance to hedge funds' consensus picks in 2019.

Is M&T Bank Corporation (NYSE:MTB) a buy right now? The smart money is in a bearish mood. The number of long hedge fund positions were trimmed by 2 in recent months. Our calculations also showed that MTB 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). MTB was in 29 hedge funds' portfolios at the end of the third quarter of 2019. There were 31 hedge funds in our database with MTB holdings at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]

TUDOR INVESTMENT CORP

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. Now we're going to view the key hedge fund action regarding M&T Bank Corporation (NYSE:MTB).

What have hedge funds been doing with M&T Bank Corporation (NYSE:MTB)?

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in MTB a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, Berkshire Hathaway held the most valuable stake in M&T Bank Corporation (NYSE:MTB), which was worth $850.2 million at the end of the third quarter. On the second spot was Balyasny Asset Management which amassed $110.7 million worth of shares. AQR Capital Management, D E Shaw, and GLG Partners 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 Giverny Capital allocated the biggest weight to M&T Bank Corporation (NYSE:MTB), around 2.17% of its 13F portfolio. BlueMar Capital Management is also relatively very bullish on the stock, dishing out 1.27 percent of its 13F equity portfolio to MTB.

Since M&T Bank Corporation (NYSE:MTB) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there were a few money managers that slashed their positions entirely by the end of the third quarter. Interestingly, Lee Ainslie's Maverick Capital said goodbye to the largest position of the 750 funds followed by Insider Monkey, totaling close to $12 million in stock, and Phill Gross and Robert Atchinson's Adage Capital Management was right behind this move, as the fund dumped about $9.6 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks similar to M&T Bank Corporation (NYSE:MTB). These stocks are Smith & Nephew plc (NYSE:SNN), Pioneer Natural Resources Company (NYSE:PXD), AMETEK, Inc. (NYSE:AME), and Corteva, Inc. (NYSE:CTVA). All of these stocks' market caps resemble MTB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNN,6,297897,-8 PXD,47,1014267,-1 AME,29,963376,-2 CTVA,35,457542,-1 Average,29.25,683271,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $683 million. That figure was $1248 million in MTB's case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 6 bullish hedge fund positions. M&T Bank Corporation (NYSE:MTB) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately MTB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MTB investors were disappointed as the stock returned 21.7% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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