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Hedge Funds Are Warming Up To BB&T Corporation (BBT)

Nina Todic

Is BB&T Corporation (NYSE:BBT) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

BB&T Corporation (NYSE:BBT) shareholders have witnessed an increase in hedge fund sentiment in recent months. BBT was in 26 hedge funds' portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with BBT holdings at the end of the previous quarter. Our calculations also showed that BBT 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

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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

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. Let's take a gander at the recent hedge fund action encompassing BB&T Corporation (NYSE:BBT).

What have hedge funds been doing with BB&T Corporation (NYSE:BBT)?

At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in BBT a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

No of Hedge Funds with BBT Positions

Among these funds, Gillson Capital held the most valuable stake in BB&T Corporation (NYSE:BBT), which was worth $64.1 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $61.2 million worth of shares. Two Sigma Advisors, Holocene Advisors, and Millennium Management 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 Gillson Capital allocated the biggest weight to BB&T Corporation (NYSE:BBT), around 5.87% of its portfolio. Interval Partners is also relatively very bullish on the stock, dishing out 0.41 percent of its 13F equity portfolio to BBT.

Now, some big names have been driving this bullishness. Interval Partners, managed by Gregg Moskowitz, created the biggest position in BB&T Corporation (NYSE:BBT). Interval Partners had $10.6 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $6.5 million position during the quarter. The other funds with new positions in the stock are James Dondero's Highland Capital Management, Donald Sussman's Paloma Partners, and Jeffrey Talpins's Element Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as BB&T Corporation (NYSE:BBT) but similarly valued. These stocks are Dollar General Corporation (NYSE:DG), SYSCO Corporation (NYSE:SYY), ING Groep N.V. (NYSE:ING), and Activision Blizzard, Inc. (NASDAQ:ATVI). This group of stocks' market values resemble BBT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DG,45,2157250,8 SYY,22,3016032,-9 ING,9,542281,1 ATVI,70,3014968,24 Average,36.5,2182633,6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $2183 million. That figure was $371 million in BBT's case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 9 bullish hedge fund positions. BB&T Corporation (NYSE:BBT) 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 BBT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BBT investors were disappointed as the stock returned 3.4% 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.

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