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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Bank of N.T. Butterfield & Son Limited (NYSE:NTB).
Is NTB a good stock to buy now? Hedge fund interest in The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that NTB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare NTB to other stocks including Repare Therapeutics Inc. (NASDAQ:RPTX), Tronox Holdings Plc (NYSE:TROX), and Enerpac Tool Group Corp. (NYSE:EPAC) to get a better sense of its popularity.
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's take a peek at the recent hedge fund action regarding The Bank of N.T. Butterfield & Son Limited (NYSE:NTB).
Do Hedge Funds Think NTB Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in NTB a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Phill Gross and Robert Atchinson's Adage Capital Management has the largest position in The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), worth close to $19.1 million, accounting for less than 0.1%% of its total 13F portfolio. Coming in second is Royce & Associates, led by Chuck Royce, holding a $16.4 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other peers that hold long positions encompass D. E. Shaw's D E Shaw, Noam Gottesman's GLG Partners and John D. Gillespie's Prospector Partners. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), around 0.44% of its 13F portfolio. Tiger Management is also relatively very bullish on the stock, designating 0.18 percent of its 13F equity portfolio to NTB.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Point72 Asset Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Renaissance Technologies).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) but similarly valued. We will take a look at Repare Therapeutics Inc. (NASDAQ:RPTX), Tronox Holdings Plc (NYSE:TROX), Enerpac Tool Group Corp. (NYSE:EPAC), Radware Ltd. (NASDAQ:RDWR), Plains GP Holdings LP (NASDAQ:PAGP), Domo Inc. (NASDAQ:DOMO), and Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT). All of these stocks' market caps match NTB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RPTX,15,359949,-2 TROX,19,69798,-2 EPAC,11,83786,-7 RDWR,10,256298,-3 PAGP,18,74928,-1 DOMO,24,252079,3 ARQT,9,526942,-1 Average,15.1,231969,-1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $56 million in NTB's case. Domo Inc. (NASDAQ:DOMO) is the most popular stock in this table. On the other hand Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) is the least popular one with only 9 bullish hedge fund positions. The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NTB is 42.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on NTB as the stock returned 38.1% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.