Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards SVB Financial Group (NASDAQ:SIVB).
Is SVB Financial Group (NASDAQ:SIVB) a first-rate investment now? The smart money is taking a pessimistic view. The number of bullish hedge fund positions decreased by 7 lately. Our calculations also showed that SIVB isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). SIVB was in 35 hedge funds' portfolios at the end of December. There were 42 hedge funds in our database with SIVB positions at the end of the previous quarter.
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 S&P 500 ETFs by more than 41 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 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_26575" align="aligncenter" width="400"] Louis Bacon Moore of Moore Capital[/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 analyze the latest hedge fund action surrounding SVB Financial Group (NASDAQ:SIVB).
How are hedge funds trading SVB Financial Group (NASDAQ:SIVB)?
At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in SIVB over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of SVB Financial Group (NASDAQ:SIVB), with a stake worth $210.6 million reported as of the end of September. Trailing Fisher Asset Management was Diamond Hill Capital, which amassed a stake valued at $107.4 million. AQR Capital Management, Two Sigma Advisors, and Azora Capital 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 SVB Financial Group (NASDAQ:SIVB), around 16.57% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, setting aside 5.9 percent of its 13F equity portfolio to SIVB.
Since SVB Financial Group (NASDAQ:SIVB) has experienced bearish sentiment from the smart money, logic holds that there exists a select few hedgies who were dropping their entire stakes last quarter. It's worth mentioning that D. E. Shaw's D E Shaw sold off the biggest position of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $12 million in stock. Renaissance Technologies, also sold off its stock, about $6.9 million worth. These moves are interesting, as total hedge fund interest was cut by 7 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to SVB Financial Group (NASDAQ:SIVB). We will take a look at Franklin Resources, Inc. (NYSE:BEN), FMC Corporation (NYSE:FMC), Steris Plc (NYSE:STE), and Varian Medical Systems, Inc. (NYSE:VAR). This group of stocks' market caps are similar to SIVB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BEN,37,565331,0 FMC,35,571116,-4 STE,33,699152,0 VAR,30,607160,1 Average,33.75,610690,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $611 million. That figure was $740 million in SIVB's case. Franklin Resources, Inc. (NYSE:BEN) is the most popular stock in this table. On the other hand Varian Medical Systems, Inc. (NYSE:VAR) is the least popular one with only 30 bullish hedge fund positions. SVB Financial Group (NASDAQ:SIVB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 SIVB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SIVB were disappointed as the stock returned -47.8% 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 many of these stocks already outperformed the market so far this year.
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.