Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Hedge fund interest in SVB Financial Group (NASDAQ:SIVB) shares was flat at the end of last quarter. This is usually a negative indicator. 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 STMicroelectronics N.V. (NYSE:STM), Markel Corporation (NYSE:MKL), and Realty Income Corporation (NYSE:O) to gather more data points.
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 18 percentage points since May 2014 through December 3, 2018 (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.
Let's take a look at the new hedge fund action regarding SVB Financial Group (NASDAQ:SIVB).
How have hedgies been trading SVB Financial Group (NASDAQ:SIVB)?
At Q3's end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, no change from the second quarter of 2018. On the other hand, there were a total of 23 hedge funds with a bullish position in SIVB at the beginning of this year. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in SVB Financial Group (NASDAQ:SIVB), which was worth $312.6 million at the end of the third quarter. On the second spot was Millennium Management which amassed $123 million worth of shares. Moreover, Citadel Investment Group, Balyasny Asset Management, and Columbus Circle Investors were also bullish on SVB Financial Group (NASDAQ:SIVB), allocating a large percentage of their portfolios to this stock.
Since SVB Financial Group (NASDAQ:SIVB) has experienced bearish sentiment from the smart money, we can see that there lies a certain "tier" of money managers that decided to sell off their entire stakes heading into Q3. Interestingly, Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital dropped the largest stake of all the hedgies monitored by Insider Monkey, worth an estimated $23.7 million in stock. Jim Simons's fund, Renaissance Technologies, also said goodbye to its stock, about $20.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as SVB Financial Group (NASDAQ:SIVB) but similarly valued. These stocks are STMicroelectronics N.V. (NYSE:STM), Markel Corporation (NYSE:MKL), Realty Income Corporation (NYSE:O), and Huntington Bancshares Incorporated (NASDAQ:HBAN). This group of stocks' market values match SIVB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STM,11,118040,-7 MKL,20,1151533,4 O,16,178027,1 HBAN,26,261222,0 Average,18.25,427206,-0.5 [/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 $427 million. That figure was $1.45 billion in SIVB's case. Huntington Bancshares Incorporated (NASDAQ:HBAN) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks SVB Financial Group (NASDAQ:SIVB) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.