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Did Hedge Funds Make The Right Call On Stifel Financial Corp. (SF)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Stifel Financial Corp. (NYSE:SF) based on that data and determine whether they were really smart about the stock.

Stifel Financial Corp. (NYSE:SF) investors should be aware of an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that SF 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.

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 58 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. Now we’re going to check out the key hedge fund action surrounding Stifel Financial Corp. (NYSE:SF).

What have hedge funds been doing with Stifel Financial Corp. (NYSE:SF)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in SF a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SF A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in Stifel Financial Corp. (NYSE:SF). Fisher Asset Management has a $49.6 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by AQR Capital Management, led by Cliff Asness, holding a $24.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Eric F. Billings’s Billings Capital Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Billings Capital Management allocated the biggest weight to Stifel Financial Corp. (NYSE:SF), around 14.1% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, dishing out 0.13 percent of its 13F equity portfolio to SF.

Consequently, some big names were breaking ground themselves. Billings Capital Management, managed by Eric F. Billings, created the biggest position in Stifel Financial Corp. (NYSE:SF). Billings Capital Management had $5.9 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $1.6 million position during the quarter. The other funds with brand new SF positions are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Dmitry Balyasny’s Balyasny Asset Management, and Peter Muller’s PDT Partners.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Stifel Financial Corp. (NYSE:SF) but similarly valued. These stocks are Texas Roadhouse Inc (NASDAQ:TXRH), Verint Systems Inc. (NASDAQ:VRNT), Janus Henderson Group plc (NYSE:JHG), and nVent Electric plc (NYSE:NVT). This group of stocks’ market values are similar to SF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TXRH 27 146523 4
VRNT 17 205592 2
JHG 23 124117 5
NVT 29 453695 1
Average 24 232482 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $106 million in SF’s case. nVent Electric plc (NYSE:NVT) is the most popular stock in this table. On the other hand Verint Systems Inc. (NASDAQ:VRNT) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Stifel Financial Corp. (NYSE:SF) is even less popular than VRNT. Hedge funds dodged a bullet by taking a bearish stance towards SF. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 17.1 percentage points. Unfortunately SF wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); SF investors were disappointed as the stock returned 17.5% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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