We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Signature Bank (NASDAQ:SBNY).
Is Signature Bank (NASDAQ:SBNY) an exceptional investment now? Prominent investors are turning bullish. The number of long hedge fund bets went up by 3 lately. Our calculations also showed that SBNY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SBNY was in 32 hedge funds' portfolios at the end of September. There were 29 hedge funds in our database with SBNY holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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.
[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]
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. We're going to go over the latest hedge fund action surrounding Signature Bank (NASDAQ:SBNY).
What have hedge funds been doing with Signature Bank (NASDAQ:SBNY)?
At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SBNY over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Signature Bank (NASDAQ:SBNY), which was worth $132.1 million at the end of the third quarter. On the second spot was First Pacific Advisors which amassed $97.9 million worth of shares. AQR Capital Management, Millennium Management, and Spindletop 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 Signature Bank (NASDAQ:SBNY), around 28.57% of its portfolio. North Run Capital is also relatively very bullish on the stock, earmarking 2.96 percent of its 13F equity portfolio to SBNY.
As industrywide interest jumped, some big names have jumped into Signature Bank (NASDAQ:SBNY) headfirst. Azora Capital, managed by Ravi Chopra, initiated the biggest position in Signature Bank (NASDAQ:SBNY). Azora Capital had $4.3 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $1.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman's Paloma Partners, David Rodriguez-Fraile's BlueMar Capital Management, and Steve Cohen's Point72 Asset Management.
Let's check out hedge fund activity in other stocks similar to Signature Bank (NASDAQ:SBNY). These stocks are New Residential Investment Corp (NYSE:NRZ), The Gap Inc. (NYSE:GPS), The Middleby Corporation (NASDAQ:MIDD), and Dolby Laboratories, Inc. (NYSE:DLB). This group of stocks' market valuations match SBNY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NRZ,19,141891,3 GPS,25,148276,4 MIDD,23,348030,-4 DLB,27,538773,0 Average,23.5,294243,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $294 million. That figure was $502 million in SBNY's case. Dolby Laboratories, Inc. (NYSE:DLB) is the most popular stock in this table. On the other hand New Residential Investment Corp (NYSE:NRZ) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Signature Bank (NASDAQ:SBNY) is more popular among hedge funds. 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 SBNY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SBNY were disappointed as the stock returned 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.