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Did Hedge Funds Make The Right Call On Signature Bank (SBNY) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Signature Bank (NASDAQ:SBNY) and determine whether hedge funds skillfully traded this stock.

Signature Bank (NASDAQ:SBNY) was in 19 hedge funds’ portfolios at the end of March. SBNY shareholders have witnessed a decrease in hedge fund interest lately. There were 21 hedge funds in our database with SBNY positions at the end of the previous quarter. Our calculations also showed that SBNY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s check out the new hedge fund action surrounding Signature Bank (NASDAQ:SBNY).

Hedge fund activity in Signature Bank (NASDAQ:SBNY)

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SBNY over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SBNY A Good Stock To Buy?

The largest stake in Signature Bank (NASDAQ:SBNY) was held by Citadel Investment Group, which reported holding $108.6 million worth of stock at the end of September. It was followed by First Pacific Advisors LLC with a $65.6 million position. Other investors bullish on the company included Alyeska Investment Group, AQR Capital Management, and Spindletop Capital. In terms of the portfolio weights assigned to each position Spindletop Capital allocated the biggest weight to Signature Bank (NASDAQ:SBNY), around 21.98% of its 13F portfolio. First Pacific Advisors LLC is also relatively very bullish on the stock, designating 0.92 percent of its 13F equity portfolio to SBNY.

Judging by the fact that Signature Bank (NASDAQ:SBNY) has experienced bearish sentiment from the smart money, logic holds that there lies a certain “tier” of hedgies that slashed their full holdings last quarter. At the top of the heap, Renaissance Technologies sold off the biggest stake of the 750 funds followed by Insider Monkey, worth an estimated $16 million in stock. Ravi Chopra’s fund, Azora Capital, also sold off its stock, about $12.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Signature Bank (NASDAQ:SBNY) but similarly valued. We will take a look at JBG SMITH Properties (NYSE:JBGS), Portland General Electric Company (NYSE:POR), FLIR Systems, Inc. (NASDAQ:FLIR), and NewMarket Corporation (NYSE:NEU). This group of stocks’ market valuations are closest to SBNY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JBGS 20 318961 1
POR 23 247138 -4
FLIR 34 193470 2
NEU 20 143254 -2
Average 24.25 225706 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $262 million in SBNY’s case. FLIR Systems, Inc. (NASDAQ:FLIR) is the most popular stock in this table. On the other hand JBG SMITH Properties (NYSE:JBGS) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Signature Bank (NASDAQ:SBNY) is even less popular than JBGS. Hedge funds clearly dropped the ball on SBNY as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on SBNY as the stock returned 33.4% since the end of March and outperformed the market by an even larger margin.

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