U.S. Markets closed

Did Hedge Funds Drop The Ball On State Street Corporation (STT) ?

Reymerlyn Martin

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding State Street Corporation (NYSE:STT).

Is State Street Corporation (NYSE:STT) undervalued? Investors who are in the know are becoming less confident. The number of long hedge fund positions went down by 3 recently. Our calculations also showed that STT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

If you'd ask most shareholders, hedge funds are viewed as unimportant, old financial vehicles of the past. While there are greater than 8000 funds trading at the moment, Our experts look at the crème de la crème of this group, about 750 funds. Most estimates calculate that this group of people preside over the majority of all hedge funds' total capital, and by keeping an eye on their best picks, Insider Monkey has found numerous investment strategies that have historically outpaced Mr. Market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_221324" align="aligncenter" width="600"] Donald Yacktman of Yacktman Asset Management[/caption]

Donald Yacktman of Yacktman Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the new hedge fund action encompassing State Street Corporation (NYSE:STT).

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

Heading into the fourth quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in STT over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

STT_dec2019

The largest stake in State Street Corporation (NYSE:STT) was held by Yacktman Asset Management, which reported holding $254.4 million worth of stock at the end of September. It was followed by D E Shaw with a $201.7 million position. Other investors bullish on the company included Two Sigma Advisors, Citadel Investment Group, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Azora Capital allocated the biggest weight to State Street Corporation (NYSE:STT), around 4.07% of its portfolio. Yacktman Asset Management is also relatively very bullish on the stock, dishing out 3.13 percent of its 13F equity portfolio to STT.

Judging by the fact that State Street Corporation (NYSE:STT) has faced a decline in interest from the smart money, logic holds that there lies a certain "tier" of money managers that slashed their positions entirely last quarter. Interestingly, Renaissance Technologies cut the biggest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $24.1 million in stock. Ray Dalio's fund, Bridgewater Associates, also cut its stock, about $22.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let's now take a look at hedge fund activity in other stocks similar to State Street Corporation (NYSE:STT). We will take a look at Cheniere Energy Partners LP (NYSEAMEX:CQP), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Kellogg Company (NYSE:K), and Hartford Financial Services Group Inc (NYSE:HIG). This group of stocks' market caps are similar to STT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CQP,5,11230,-2 ALXN,46,2582286,2 K,27,629331,-1 HIG,32,848897,2 Average,27.5,1017936,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $1018 million. That figure was $1207 million in STT's case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSEAMEX:CQP) is the least popular one with only 5 bullish hedge fund positions. State Street Corporation (NYSE:STT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on STT as the stock returned 26.9% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

Related Content