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Did Hedge Funds Make The Right Call On Synovus Financial Corp. (SNV)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Synovus Financial Corp. (NYSE:SNV) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Synovus Financial Corp. (NYSE:SNV) was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. SNV investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. There were 35 hedge funds in our database with SNV positions at the end of the previous quarter. Our calculations also showed that SNV 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the fresh hedge fund action regarding Synovus Financial Corp. (NYSE:SNV).

How have hedgies been trading Synovus Financial Corp. (NYSE:SNV)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SNV over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in Synovus Financial Corp. (NYSE:SNV), which was worth $61.6 million at the end of the third quarter. On the second spot was Gillson Capital which amassed $15.5 million worth of shares. Renaissance Technologies, EJF Capital, and East Side Capital (RR Partners) 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 Forest Hill Capital allocated the biggest weight to Synovus Financial Corp. (NYSE:SNV), around 2.86% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, setting aside 2.85 percent of its 13F equity portfolio to SNV.

Due to the fact that Synovus Financial Corp. (NYSE:SNV) has experienced falling interest from the aggregate hedge fund industry, we can see that there were a few fund managers who sold off their entire stakes in the first quarter. Interestingly, Anand Parekh’s Alyeska Investment Group dropped the largest investment of the 750 funds monitored by Insider Monkey, totaling an estimated $32.8 million in stock, and Paul Magidson, Jonathan Cohen. And Ostrom Enders’s Castine Capital Management was right behind this move, as the fund cut about $11.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Synovus Financial Corp. (NYSE:SNV) but similarly valued. These stocks are Essent Group Ltd (NYSE:ESNT), TriNet Group Inc (NYSE:TNET), II-VI, Inc. (NASDAQ:IIVI), and Cushman & Wakefield plc (NYSE:CWK). All of these stocks’ market caps are closest to SNV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESNT 26 196484 -10
TNET 19 230192 -1
IIVI 20 99773 2
CWK 15 89918 -3
Average 20 154092 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $228 million in SNV’s case. Essent Group Ltd (NYSE:ESNT) is the most popular stock in this table. On the other hand Cushman & Wakefield plc (NYSE:CWK) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Synovus Financial Corp. (NYSE:SNV) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately SNV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SNV were disappointed as the stock returned 18.6% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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