We track more than 800 hedge funds and measure the performance of their long stock picks in real time. We created a giant $1.6 trillion portfolio of hedge funds’ long positions, and while it is true that hedge funds had some high profile losses this year that are “celebrated” by the media, their stock picks actually outperformed the S&P 500 Total Return Index by 50 basis points and the Russell 2000 Index by 410 basis points during the first 2 months of this year. So, on average it is a good idea to pay attention to what hedge funds are doing. Keeping this in mind, let’s take a look at the hedge fund activity in Synchrony Financial (NYSE:SYF).
What a difference three months makes. One quarter after ranking as one of the least favorite large-cap stocks among the funds in our system, with just 1.1% of its shares being held by the investors that we track, Synchrony Financial experienced a tidal wave of investor enthusiasm in the fourth quarter, with 17% of its shares held by investors in our database at the end of 2015. The total number of hedge funds with long positions in SYF skyrocketed to 82 from just 21, while the value of their holdings leapt to $4.31 billion from $292 million. The stock’s ownership among the billionaires that we track received an even greater boost, jumping to 15 from just 2.
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Why are investors going crazy for Synchrony Financial now? Well, the primary answer is likely a disappointment in comparison to what such a potential catalyst COULD have been, and it’s simply that General Electric Company (NYSE:GE), which SYF was spun-off from in mid-2014, executed a $20.2 billion share exchange during the quarter that shed GE’s 85% ownership in Synchrony to essentially buy back its own shares, reducing its float by about 7%. That process helped to push investors into SYF and greatly boost the amount of available shares of SYF for other investors. Of course, that in and of itself doesn’t explain why the stock is so popular, which can partly be attributed to some of the other catalysts during the quarter, including its inclusion in the S&P 500, analyst upgrades, deals inked with new retailers, and guidance being raised to new heights.
SYF has a strong position in the retail payments space, where it provides private-label credit card programs for clients/partners such as Amazon.com, Inc. (NASDAQ:AMZN) and Wal-Mart Stores, Inc. (NYSE:WMT), and there’s potential for other big clients in the future, with recent suggestions from Nomura that SYF and Paypal Holdings Inc (NASDAQ:PYPL) should join forces. SYF trades at a P/E of just 10.8 and is expected to begin making dividend payments to shareholders later this year.
With that out of the way, let’s check out the fresh hedge fund action surrounding Synchrony Financial (NYSE:SYF).
What have hedge funds been doing with Synchrony Financial (NYSE:SYF)?
Heading into 2016, a total of 82 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 290% boost from one quarter earlier. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially (or had already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the number one position in Synchrony Financial (NYSE:SYF). Adage Capital Management has a $658.1 million position in the stock, comprising 1.7% of its 13F portfolio. On Adage Capital Management’s heels is First Eagle Investment Management, holding a $320.7 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions comprise Matthew Halbower’s Pentwater Capital Management, George Soros’s Soros Fund Management, and Israel Englander’s Millennium Management.
As industrywide interest jumped, specific money managers have been driving this bullishness. Adage Capital Management initiated the most outsized position in Synchrony Financial (NYSE:SYF). George Soros’ Soros Fund Management also initiated a $216.8 million position during the quarter. Some of the other funds with brand new SYF positions include Israel Englander’s Millennium Management, James Dinan’s York Capital Management, and Doug Silverman and Alexander Klabin’s Senator Investment Group.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Synchrony Financial (NYSE:SYF) but similarly valued. These stocks are CSX Corporation (NYSE:CSX), Aon PLC (NYSE:AON), Norfolk Southern Corp. (NYSE:NSC), and AvalonBay Communities Inc (NYSE:AVB). All of these stocks’ market caps are closest to SYF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CSX | 45 | 1047256 | -2 |
| AON | 28 | 3223252 | -6 |
| NSC | 32 | 513161 | -1 |
| AVB | 20 | 734120 | -4 |
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $1.38 billion. That figure was $4.31 billion in SYF’s case. CSX Corporation (NYSE:CSX) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Synchrony Financial (NYSE:SYF) is more popular among hedge funds. Considering that hedge funds are extremely fond of this stock in relation to its market cap peers and that sentiment has improved dramatically, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
