Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Signature Bank (NASDAQ:SBNY).
Is Signature Bank (NASDAQ:SBNY) going to take off soon? The smart money is in a pessimistic mood. The number of bullish hedge fund positions went down by 7 in recent months. Our calculations also showed that SBNY isn't among the 30 most popular stocks among hedge funds (view the video below). SBNY was in 29 hedge funds' portfolios at the end of the second quarter of 2019. There were 36 hedge funds in our database with SBNY positions at the end of the previous quarter. Video: Click the image to 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 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Let's take a look at the recent hedge fund action surrounding Signature Bank (NASDAQ:SBNY).
How are hedge funds trading Signature Bank (NASDAQ:SBNY)?
At the end of the second quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in SBNY a year ago. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin's Citadel Investment Group has the biggest position in Signature Bank (NASDAQ:SBNY), worth close to $162.6 million, accounting for 0.1% of its total 13F portfolio. On Citadel Investment Group's heels is First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, which holds a $98.4 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Israel Englander's Millennium Management, Cliff Asness's AQR Capital Management and David E. Winebrenner's Spindletop Capital.
Because Signature Bank (NASDAQ:SBNY) has witnessed falling interest from the aggregate hedge fund industry, we can see that there were a few hedge funds who sold off their entire stakes last quarter. At the top of the heap, Ravi Chopra's Azora Capital dumped the largest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $35.4 million in stock. Robert Pohly's fund, Samlyn Capital, also dumped its stock, about $31.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Signature Bank (NASDAQ:SBNY) but similarly valued. We will take a look at Steel Dynamics, Inc. (NASDAQ:STLD), East West Bancorp, Inc. (NASDAQ:EWBC), Assurant, Inc. (NYSE:AIZ), and Dunkin Brands Group Inc (NASDAQ:DNKN). This group of stocks' market caps match SBNY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STLD,31,591407,4 EWBC,28,378757,-1 AIZ,29,515543,-10 DNKN,23,335111,1 Average,27.75,455205,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $455 million. That figure was $514 million in SBNY's case. Steel Dynamics, Inc. (NASDAQ:STLD) is the most popular stock in this table. On the other hand Dunkin Brands Group Inc (NASDAQ:DNKN) is the least popular one with only 23 bullish hedge fund positions. Signature Bank (NASDAQ:SBNY) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SBNY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SBNY were disappointed as the stock returned -0.9% 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 among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.