Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
[caption id="attachment_315178" align="aligncenter" width="450"] Warren Buffett[/caption]
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the key hedge fund action encompassing M&T Bank Corporation (NYSE:MTB).
What does smart money think about M&T Bank Corporation (NYSE:MTB)?
Heading into the third quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. On the other hand, there were a total of 39 hedge funds with a bullish position in MTB a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Warren Buffett's Berkshire Hathaway has the most valuable position in M&T Bank Corporation (NYSE:MTB), worth close to $915.3 million, corresponding to 0.4% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, led by Cliff Asness, holding a $67.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish include D. E. Shaw's D E Shaw, Renaissance Technologies and Noam Gottesman's GLG Partners.
Because M&T Bank Corporation (NYSE:MTB) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedgies that elected to cut their entire stakes heading into Q3. It's worth mentioning that David Harding's Winton Capital Management dropped the largest position of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $10.4 million in stock. Matthew Tewksbury's fund, Stevens Capital Management, also dropped its stock, about $6.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 5 funds heading into Q3.
Let's now review hedge fund activity in other stocks similar to M&T Bank Corporation (NYSE:MTB). These stocks are Zoom Video Communications, Inc. (NASDAQ:ZM), FirstEnergy Corp. (NYSE:FE), Total System Services, Inc. (NYSE:TSS), and Fox Corporation (NASDAQ:FOXA). All of these stocks' market caps are similar to MTB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZM,32,602810,32 FE,34,3498562,-7 TSS,45,1236790,5 FOXA,60,3322026,-11 Average,42.75,2165047,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.75 hedge funds with bullish positions and the average amount invested in these stocks was $2165 million. That figure was $1265 million in MTB's case. Fox Corporation (NASDAQ:FOXA) is the most popular stock in this table. On the other hand Zoom Video Communications, Inc. (NASDAQ:ZM) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks M&T Bank Corporation (NYSE:MTB) is even less popular than ZM. Hedge funds dodged a bullet by taking a bearish stance towards MTB. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MTB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MTB investors were disappointed as the stock returned -6.5% during the third quarter and underperformed 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 (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.