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Hedge Funds Love These 3 Stocks More Than Sumitomo Mitsui Financial (SMFG)

Reymerlyn Martin

Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) changed during the third quarter and compare it against peer companies such as Kinder Morgan Inc (NYSE:KMI), L3Harris Technologies, Inc. (NYSE:LHX), American Electric Power Company, Inc. (NYSE:AEP), and Lloyds Banking Group PLC (NYSE:LYG).

Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) investors should be aware of a decrease in hedge fund interest lately. SMFG was in 10 hedge funds' portfolios at the end of September. There were 14 hedge funds in our database with SMFG holdings at the end of the previous quarter. Our calculations also showed that SMFG 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

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 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 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_26335" align="aligncenter" width="600"] Ken Fisher of Fisher Asset Management[/caption]

Ken Fisher FISHER ASSET MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to view the recent hedge fund action surrounding Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG).

What have hedge funds been doing with Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG)?

Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the second quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in SMFG a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), which was worth $419.3 million at the end of the third quarter. On the second spot was LMR Partners which amassed $75 million worth of shares. Renaissance Technologies, D E Shaw, and Two Sigma Advisors 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 LMR Partners allocated the biggest weight to Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), around 3.71% of its 13F portfolio. Fisher Asset Management is also relatively very bullish on the stock, dishing out 0.46 percent of its 13F equity portfolio to SMFG.

Due to the fact that Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) has witnessed a decline in interest from the smart money, it's safe to say that there is a sect of fund managers that elected to cut their full holdings last quarter. Interestingly, Matthew Tewksbury's Stevens Capital Management dumped the largest stake of the "upper crust" of funds watched by Insider Monkey, valued at close to $0.5 million in stock, and Minhua Zhang's Weld Capital Management was right behind this move, as the fund said goodbye to about $0.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG). We will take a look at Kinder Morgan Inc (NYSE:KMI), L3Harris Technologies, Inc. (NYSE:LHX), American Electric Power Company, Inc. (NYSE:AEP), and Lloyds Banking Group PLC (NYSE:LYG). All of these stocks' market caps are closest to SMFG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KMI,33,1467589,-4 LHX,48,2486967,18 AEP,31,1768736,4 LYG,7,52469,-1 Average,29.75,1443940,4.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1444 million. That figure was $553 million in SMFG's case. L3Harris Technologies, Inc. (NYSE:LHX) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 7 bullish hedge fund positions. Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on SMFG, though not to the same extent, as the stock returned 6.9% during the first two months of the fourth quarter and outperformed the market.

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

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