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Is Shinhan Financial Group Co., Ltd. (SHG) Going to Burn These Hedge Funds?

Reymerlyn Martin

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Shinhan Financial Group Co., Ltd. (NYSE:SHG).

Shinhan Financial Group Co., Ltd. (NYSE:SHG) was in 5 hedge funds' portfolios at the end of the second quarter of 2019. SHG shareholders have witnessed an increase in activity from the world's largest hedge funds in recent months. There were 4 hedge funds in our database with SHG holdings at the end of the previous quarter. Our calculations also showed that SHG isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

FISHER ASSET MANAGEMENT

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the key hedge fund action surrounding Shinhan Financial Group Co., Ltd. (NYSE:SHG).

What have hedge funds been doing with Shinhan Financial Group Co., Ltd. (NYSE:SHG)?

Heading into the third quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SHG over the last 16 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

SHG_oct2019

The largest stake in Shinhan Financial Group Co., Ltd. (NYSE:SHG) was held by Pzena Investment Management, which reported holding $5.8 million worth of stock at the end of March. It was followed by Fisher Asset Management with a $0.8 million position. Other investors bullish on the company included Citadel Investment Group, Laurion Capital Management, and Arrowstreet Capital.

Now, specific money managers have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, created the most valuable position in Shinhan Financial Group Co., Ltd. (NYSE:SHG). Laurion Capital Management had $0.4 million invested in the company at the end of the quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Shinhan Financial Group Co., Ltd. (NYSE:SHG) but similarly valued. We will take a look at Vulcan Materials Company (NYSE:VMC), AmerisourceBergen Corporation (NYSE:ABC), Cheniere Energy, Inc. (NYSEAMEX:LNG), and KeyCorp (NYSE:KEY). This group of stocks' market valuations match SHG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VMC,52,2028909,4 ABC,36,624583,8 LNG,43,4383992,-10 KEY,31,931275,-1 Average,40.5,1992190,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $1992 million. That figure was $8 million in SHG's case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand KeyCorp (NYSE:KEY) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Shinhan Financial Group Co., Ltd. (NYSE:SHG) is even less popular than KEY. Hedge funds dodged a bullet by taking a bearish stance towards SHG. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SHG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SHG investors were disappointed as the stock returned -10% during the third 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 many of these stocks already outperformed the market so far in 2019.

Disclosure: None. This article was originally published at Insider Monkey.

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