"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards S & T Bancorp Inc (NASDAQ:STBA) and see how it was affected.
S & T Bancorp Inc (NASDAQ:STBA) has experienced a decrease in enthusiasm from smart money recently. STBA was in 10 hedge funds' portfolios at the end of the third quarter of 2019. There were 11 hedge funds in our database with STBA holdings at the end of the previous quarter. Our calculations also showed that STBA 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.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746830" align="aligncenter" width="1613"] Matthew Hulsizer of PEAK6 Capital[/caption]
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 review the latest hedge fund action encompassing S & T Bancorp Inc (NASDAQ:STBA).
How are hedge funds trading S & T Bancorp Inc (NASDAQ:STBA)?
At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the second quarter of 2019. On the other hand, there were a total of 6 hedge funds with a bullish position in STBA 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 S & T Bancorp Inc (NASDAQ:STBA) was held by Millennium Management, which reported holding $11 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $5.6 million position. Other investors bullish on the company included Citadel Investment Group, Renaissance Technologies, and Paloma Partners. In terms of the portfolio weights assigned to each position Caxton Associates allocated the biggest weight to S & T Bancorp Inc (NASDAQ:STBA), around 0.08% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to STBA.
Due to the fact that S & T Bancorp Inc (NASDAQ:STBA) has faced a decline in interest from hedge fund managers, it's easy to see that there is a sect of hedgies that elected to cut their positions entirely last quarter. Interestingly, Paul Marshall and Ian Wace's Marshall Wace sold off the biggest investment of the 750 funds tracked by Insider Monkey, valued at close to $0.8 million in stock. Michael Gelband's fund, ExodusPoint Capital, also dumped its stock, about $0.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let's check out hedge fund activity in other stocks similar to S & T Bancorp Inc (NASDAQ:STBA). We will take a look at Armada Hoffler Properties Inc (NYSE:AHH), Knoll Inc (NYSE:KNL), Waddell & Reed Financial, Inc. (NYSE:WDR), and Nexa Resources S.A. (NYSE:NEXA). All of these stocks' market caps are similar to STBA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AHH,14,91721,5 KNL,15,59319,-1 WDR,18,124549,0 NEXA,6,6943,-3 Average,13.25,70633,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $25 million in STBA's case. Waddell & Reed Financial, Inc. (NYSE:WDR) is the most popular stock in this table. On the other hand Nexa Resources S.A. (NYSE:NEXA) is the least popular one with only 6 bullish hedge fund positions. S & T Bancorp Inc (NASDAQ:STBA) 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 STBA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); STBA investors were disappointed as the stock returned 4% 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.