A market correction in the third quarter, spurred by a number of global macroeconomic concerns ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 14 percentage points between June 25 and the end of October. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of KeyCorp (NYSE:KEY) during the quarter.
KeyCorp (NYSE:KEY) has seen a decrease in enthusiasm from smart money lately. KEY was in 35 hedge funds’ portfolios at the end of the third quarter of 2015. There were 37 hedge funds in our database with KEY positions at the end of the previous quarter. At the end of this article we will also compare KEY to other stocks including Laboratory Corp. of America Holdings (NYSE:LH), Dr. Reddy’s Laboratories Limited (ADR) (NYSE:RDY), and ServiceNow Inc (NYSE:NOW) to get a better sense of its popularity.
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To most investors, hedge funds are assumed to be slow, outdated financial vehicles of yesteryear. While there are greater than 8000 funds in operation at the moment, Our researchers hone in on the moguls of this group, approximately 700 funds. These investment experts preside over the majority of all hedge funds’ total capital, and by tracking their first-class investments, Insider Monkey has unearthed various investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points a year for a decade in their back tests.
With all of this in mind, let’s view the latest action surrounding KeyCorp (NYSE:KEY).
What have hedge funds been doing with KeyCorp (NYSE:KEY)?
Heading into Q4, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in KeyCorp (NYSE:KEY). AQR Capital Management has a $257.7 million position in the stock, comprising 0.5% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which holds a $92.3 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism contain Richard S. Pzena’s Pzena Investment Management, Israel Englander’s Millennium Management and Martin Whitman’s Third Avenue Management.
Seeing as KeyCorp (NYSE:KEY) has experienced a declination in interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers who sold off their positions entirely heading into Q4. Interestingly, Dmitry Balyasny’s Balyasny Asset Management sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, totaling about $40.7 million in stock. John Brennan’s fund, Sirios Capital Management, also cut its stock, about $32.5 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to KeyCorp (NYSE:KEY). These stocks are Laboratory Corp. of America Holdings (NYSE:LH), Dr. Reddy’s Laboratories Limited (ADR) (NYSE:RDY), ServiceNow Inc (NYSE:NOW), and Signet Jewelers Ltd. (NYSE:SIG). This group of stocks’ market caps resemble KEY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LH | 43 | 2336507 | -9 |
| RDY | 14 | 537925 | 1 |
| NOW | 26 | 616863 | -4 |
| SIG | 47 | 3147282 | -2 |
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1660 million. That figure was $656 million in KEY’s case. Signet Jewelers Ltd. (NYSE:SIG) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (ADR) (NYSE:RDY) is the least popular one with only 14 bullish hedge fund positions. KeyCorp (NYSE:KEY) 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. In this regard SIG might be a better candidate to consider a long position.
