Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in The Bank of New York Mellon Corporation (NYSE:BK)? The smart money sentiment can provide an answer to this question.
Is The Bank of New York Mellon Corporation (NYSE:BK) an attractive investment right now? Prominent investors were in a pessimistic mood. The number of long hedge fund bets retreated by 4 lately. The Bank of New York Mellon Corporation (NYSE:BK) was in 48 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 58. Our calculations also showed that BK 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 52 hedge funds in our database with BK 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.
Noam Gottesman of GLG Partners
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. Now let's take a peek at the latest hedge fund action regarding The Bank of New York Mellon Corporation (NYSE:BK).
Hedge fund activity in The Bank of New York Mellon Corporation (NYSE:BK)
At the end of June, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BK over the last 20 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Berkshire Hathaway was the largest shareholder of The Bank of New York Mellon Corporation (NYSE:BK), with a stake worth $2796.6 million reported as of the end of September. Trailing Berkshire Hathaway was D E Shaw, which amassed a stake valued at $218 million. GLG Partners, AQR Capital Management, and Trian 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 LFL Advisers allocated the biggest weight to The Bank of New York Mellon Corporation (NYSE:BK), around 8.65% of its 13F portfolio. Trian Partners is also relatively very bullish on the stock, dishing out 3.51 percent of its 13F equity portfolio to BK.
Judging by the fact that The Bank of New York Mellon Corporation (NYSE:BK) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds who sold off their full holdings last quarter. Interestingly, James Parsons's Junto Capital Management cut the biggest position of the "upper crust" of funds watched by Insider Monkey, worth an estimated $41.2 million in stock, and Anand Parekh's Alyeska Investment Group was right behind this move, as the fund cut about $33 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds last quarter.
Let's now review hedge fund activity in other stocks similar to The Bank of New York Mellon Corporation (NYSE:BK). We will take a look at Bank of Montreal (NYSE:BMO), Constellation Brands, Inc. (NYSE:STZ), Thomson Reuters Corporation (NYSE:TRI), Banco Bradesco SA (NYSE:BBD), Public Storage (NYSE:PSA), SBA Communications Corporation (NASDAQ:SBAC), and Metlife Inc (NYSE:MET). This group of stocks' market values are similar to BK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BMO,13,107019,0 STZ,53,1653433,3 TRI,25,440519,3 BBD,18,235952,3 PSA,26,712541,-1 SBAC,57,2165651,11 MET,31,970822,-3 Average,31.9,897991,2.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $898 million. That figure was $4431 million in BK's case. SBA Communications Corporation (NASDAQ:SBAC) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 13 bullish hedge fund positions. The Bank of New York Mellon Corporation (NYSE:BK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BK is 65.6. 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 positive signal but 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 30% in 2020 through October 23rd and beat the market by 21 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 -1.7% since the end of June (through 10/23) 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.