Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Banco Santander, S.A. (NYSE:SAN) to find out whether it was one of their high conviction long-term ideas.
Is Banco Santander, S.A. (NYSE:SAN) ready to rally soon? The best stock pickers are getting more optimistic. The number of long hedge fund positions increased by 5 in recent months. Our calculations also showed that san isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's take a look at the fresh hedge fund action regarding Banco Santander, S.A. (NYSE:SAN).
How are hedge funds trading Banco Santander, S.A. (NYSE:SAN)?
At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in SAN a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Banco Santander, S.A. (NYSE:SAN). Fisher Asset Management has a $439.9 million position in the stock, comprising 0.6% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, managed by Jim Simons, which holds a $69.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism consist of Cliff Asness's AQR Capital Management, Mike Masters's Masters Capital Management and John W. Rogers's Ariel Investments.
Now, key money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Banco Santander, S.A. (NYSE:SAN). Arrowstreet Capital had $8.5 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also made a $0.7 million investment in the stock during the quarter. The other funds with brand new SAN positions are Michael Platt and William Reeves's BlueCrest Capital Mgmt., Dmitry Balyasny's Balyasny Asset Management, and Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Banco Santander, S.A. (NYSE:SAN) but similarly valued. We will take a look at VMware, Inc. (NYSE:VMW), Anthem Inc (NYSE:ANTM), Stryker Corporation (NYSE:SYK), and Enbridge Inc (NYSE:ENB). All of these stocks' market caps are similar to SAN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VMW,32,1756915,0 ANTM,73,6147999,6 SYK,34,635206,-10 ENB,20,173528,2 Average,39.75,2178412,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.75 hedge funds with bullish positions and the average amount invested in these stocks was $2178 million. That figure was $691 million in SAN's case. Anthem Inc (NYSE:ANTM) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 20 bullish hedge fund positions. Banco Santander, S.A. (NYSE:SAN) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately SAN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SAN investors were disappointed as the stock returned -1.6% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.