Hedge Funds Were Dumping Signature Bank (SBNY) Before The Coronavirus
We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Signature Bank (NASDAQ:SBNY) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Signature Bank (NASDAQ:SBNY) was in 21 hedge funds' portfolios at the end of the fourth quarter of 2019. SBNY investors should be aware of a decrease in enthusiasm from smart money of late. There were 36 hedge funds in our database with SBNY holdings at the end of the previous quarter. Our calculations also showed that SBNY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To most shareholders, hedge funds are assumed to be underperforming, old financial vehicles of the past. While there are greater than 8000 funds trading at present, Our researchers look at the moguls of this group, approximately 850 funds. It is estimated that this group of investors oversee most of the hedge fund industry's total capital, and by paying attention to their first-class picks, Insider Monkey has formulated various investment strategies that have historically outpaced the market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_189632" align="aligncenter" width="400"]
David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a gander at the recent hedge fund action regarding Signature Bank (NASDAQ:SBNY).
How have hedgies been trading Signature Bank (NASDAQ:SBNY)?
At Q4's end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -42% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SBNY over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Signature Bank (NASDAQ:SBNY), which was worth $152.3 million at the end of the third quarter. On the second spot was First Pacific Advisors LLC which amassed $111 million worth of shares. AQR Capital Management, Spindletop Capital, and Alyeska Investment Group 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 Spindletop Capital allocated the biggest weight to Signature Bank (NASDAQ:SBNY), around 33.1% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, earmarking 1.8 percent of its 13F equity portfolio to SBNY.
Since Signature Bank (NASDAQ:SBNY) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedge funds who were dropping their entire stakes heading into Q4. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the biggest stake of the "upper crust" of funds watched by Insider Monkey, worth an estimated $10.3 million in stock, and Principal Global Investors's Columbus Circle Investors was right behind this move, as the fund dumped about $6.3 million worth. These moves are interesting, as total hedge fund interest was cut by 15 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Signature Bank (NASDAQ:SBNY) but similarly valued. We will take a look at AMERCO (NASDAQ:UHAL), Autoliv Inc. (NYSE:ALV), SL Green Realty Corp (NYSE:SLG), and XPO Logistics Inc (NYSE:XPO). This group of stocks' market caps are similar to SBNY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UHAL,17,400076,7 ALV,21,729536,5 SLG,27,447307,-2 XPO,32,2830931,6 Average,24.25,1101963,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $1102 million. That figure was $462 million in SBNY's case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand AMERCO (NASDAQ:UHAL) is the least popular one with only 17 bullish hedge fund positions. Signature Bank (NASDAQ:SBNY) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately SBNY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SBNY investors were disappointed as the stock returned -35.4% 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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