We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like SLM Corp (NASDAQ:SLM).
Is SLM Corp (NASDAQ:SLM) a buy, sell, or hold? The smart money is becoming less hopeful. The number of long hedge fund positions went down by 7 recently. Our calculations also showed that SLM 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.
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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30493" align="aligncenter" width="600"] Jeffrey Ubben of ValueAct Capital[/caption]
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 take a look at the fresh hedge fund action encompassing SLM Corp (NASDAQ:SLM).
Hedge fund activity in SLM Corp (NASDAQ:SLM)
At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SLM 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.
Among these funds, ValueAct Capital held the most valuable stake in SLM Corp (NASDAQ:SLM), which was worth $345.8 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $28.9 million worth of shares. Arrowstreet Capital, Renaissance Technologies, and Citadel Investment Group 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 ValueAct Capital allocated the biggest weight to SLM Corp (NASDAQ:SLM), around 3.73% of its portfolio. Selz Capital is also relatively very bullish on the stock, setting aside 1.68 percent of its 13F equity portfolio to SLM.
Seeing as SLM Corp (NASDAQ:SLM) has witnessed a decline in interest from hedge fund managers, it's easy to see that there lies a certain "tier" of fund managers that slashed their entire stakes heading into Q4. It's worth mentioning that Kenneth Squire's 13D Management sold off the largest investment of the 750 funds watched by Insider Monkey, valued at close to $14 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund sold off about $5.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 7 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to SLM Corp (NASDAQ:SLM). We will take a look at Antero Midstream Corp (NYSE:AM), F.N.B. Corp (NYSE:FNB), Weingarten Realty Investors (NYSE:WRI), and Stag Industrial Inc (NYSE:STAG). All of these stocks' market caps are closest to SLM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AM,16,138560,1 FNB,18,107990,-1 WRI,19,170653,-1 STAG,20,217915,9 Average,18.25,158780,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $501 million in SLM's case. Stag Industrial Inc (NYSE:STAG) is the most popular stock in this table. On the other hand Antero Midstream Corp (NYSE:AM) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks SLM Corp (NASDAQ:SLM) is more popular among hedge funds. 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. Unfortunately SLM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SLM were disappointed as the stock returned -3.3% during the first two months of the fourth 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 among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.