Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze SVB Financial Group (NASDAQ:SIVB) from the perspective of those elite funds.
SVB Financial Group (NASDAQ:SIVB) was in 33 hedge funds' portfolios at the end of December. SIVB has experienced a decrease in activity from the world's largest hedge funds in recent months. There were 37 hedge funds in our database with SIVB holdings at the end of the previous quarter. Our calculations also showed that SIVB isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a look at the recent hedge fund action regarding SVB Financial Group (NASDAQ:SIVB).
What does the smart money think about SVB Financial Group (NASDAQ:SIVB)?
At the end of the fourth quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SIVB over the last 14 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of SVB Financial Group (NASDAQ:SIVB), with a stake worth $202 million reported as of the end of September. Trailing Fisher Asset Management was Citadel Investment Group, which amassed a stake valued at $89.9 million. Adage Capital Management, Columbus Circle Investors, and Diamond Hill Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as SVB Financial Group (NASDAQ:SIVB) has experienced falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of funds who were dropping their entire stakes in the third quarter. It's worth mentioning that James Crichton's Hitchwood Capital Management said goodbye to the largest position of all the hedgies tracked by Insider Monkey, worth an estimated $83.9 million in stock, and Ravi Chopra's Azora Capital was right behind this move, as the fund said goodbye to about $83.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 4 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as SVB Financial Group (NASDAQ:SIVB) but similarly valued. These stocks are Old Dominion Freight Line (NASDAQ:ODFL), Sociedad Química y Minera de Chile S.A. (NYSE:SQM), CF Industries Holdings, Inc. (NYSE:CF), and Apollo Global Management LLC (NYSE:APO). This group of stocks' market valuations match SIVB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ODFL,20,218611,-4 SQM,8,56321,-1 CF,42,923972,9 APO,22,1244232,0 Average,23,610784,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $611 million. That figure was $667 million in SIVB's case. CF Industries Holdings, Inc. (NYSE:CF) is the most popular stock in this table. On the other hand Sociedad Química y Minera de Chile S.A. (NYSE:SQM) is the least popular one with only 8 bullish hedge fund positions. SVB Financial Group (NASDAQ:SIVB) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on SIVB as the stock returned 29.6% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.
Disclosure: None. This article was originally published at Insider Monkey.