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 SunTrust Banks, Inc. (NYSE:STI).
SunTrust Banks, Inc. (NYSE:STI) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 31 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as O'Reilly Automotive Inc (NASDAQ:ORLY), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), and ONEOK, Inc. (NYSE:OKE) to gather more data points. Our calculations also showed that STI 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' 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_256989" align="aligncenter" width="450"] Dmitry Balyasny of Balyasny Asset Managemnet[/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. We're going to review the recent hedge fund action surrounding SunTrust Banks, Inc. (NYSE:STI).
What have hedge funds been doing with SunTrust Banks, Inc. (NYSE:STI)?
Heading into the fourth quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in STI a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in SunTrust Banks, Inc. (NYSE:STI) was held by Arrowstreet Capital, which reported holding $214.2 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $125.9 million position. Other investors bullish on the company included Alpine Associates, Water Island Capital, and Tudor Investment Corp. In terms of the portfolio weights assigned to each position Water Island Capital allocated the biggest weight to SunTrust Banks, Inc. (NYSE:STI), around 7.82% of its portfolio. One Fin Capital Management is also relatively very bullish on the stock, designating 7.63 percent of its 13F equity portfolio to STI.
Because SunTrust Banks, Inc. (NYSE:STI) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few money managers that elected to cut their positions entirely in the third quarter. Intriguingly, Anand Parekh's Alyeska Investment Group dropped the largest position of the "upper crust" of funds tracked by Insider Monkey, worth about $37.2 million in stock. Perella Weinberg Partners, also cut its stock, about $6.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to SunTrust Banks, Inc. (NYSE:STI). These stocks are O'Reilly Automotive Inc (NASDAQ:ORLY), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), ONEOK, Inc. (NYSE:OKE), and NXP Semiconductors NV (NASDAQ:NXPI). All of these stocks' market caps match STI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ORLY,42,2055261,-8 REGN,33,869893,-4 OKE,23,308569,2 NXPI,59,3380862,-1 Average,39.25,1653646,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $1654 million. That figure was $1100 million in STI's case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand ONEOK, Inc. (NYSE:OKE) is the least popular one with only 23 bullish hedge fund positions. SunTrust Banks, Inc. (NYSE:STI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately STI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); STI investors were disappointed as the stock returned 3.8% 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.