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Hedge Fund Consensus Stocks vs. Signature Bank (SBNY) In 2019

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Signature Bank (NASDAQ:SBNY) and see how the stock performed in comparison to hedge funds’ consensus picks.

Is Signature Bank (NASDAQ:SBNY) the right investment to pursue these days? Prominent investors are becoming hopeful. The number of long hedge fund positions went up by 3 recently. Our calculations also showed that SBNY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to analyze the latest hedge fund action regarding Signature Bank (NASDAQ:SBNY).

How have hedgies been trading Signature Bank (NASDAQ:SBNY)?

At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in SBNY over the last 17 quarters. So, let’s see 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?

Among these funds, Citadel Investment Group held the most valuable stake in Signature Bank (NASDAQ:SBNY), which was worth $132.1 million at the end of the third quarter. On the second spot was First Pacific Advisors which amassed $97.9 million worth of shares. AQR Capital Management, Millennium Management, and Spindletop Capital 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 Spindletop Capital allocated the biggest weight to Signature Bank (NASDAQ:SBNY), around 28.57% of its 13F portfolio. North Run Capital is also relatively very bullish on the stock, dishing out 2.96 percent of its 13F equity portfolio to SBNY.

As industrywide interest jumped, some big names have been driving this bullishness. Azora Capital, managed by Ravi Chopra, created the most outsized position in Signature Bank (NASDAQ:SBNY). Azora Capital had $4.3 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $1.9 million position during the quarter. The other funds with brand new SBNY positions are Donald Sussman’s Paloma Partners, David Rodriguez-Fraile’s BlueMar Capital Management, and Steve Cohen’s Point72 Asset Management.

Let’s now take a look at hedge fund activity in other stocks similar to Signature Bank (NASDAQ:SBNY). We will take a look at New Residential Investment Corp (NYSE:NRZ), The Gap Inc. (NYSE:GPS), The Middleby Corporation (NASDAQ:MIDD), and Dolby Laboratories, Inc. (NYSE:DLB). This group of stocks’ market caps are similar to SBNY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NRZ 19 141891 3
GPS 25 148276 4
MIDD 23 348030 -4
DLB 27 538773 0
Average 23.5 294243 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $294 million. That figure was $502 million in SBNY’s case. Dolby Laboratories, Inc. (NYSE:DLB) is the most popular stock in this table. On the other hand New Residential Investment Corp (NYSE:NRZ) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Signature Bank (NASDAQ:SBNY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on SBNY, though not to the same extent, as the stock returned 34.6% during the same period and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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