Is SunTrust Banks, Inc. (STI) Going to Burn These Hedge Funds?

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in October, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about SunTrust Banks, Inc. (NYSE:STI) in this article.

SunTrust Banks, Inc. (NYSE:STI) has seen a decrease in activity from the world’s largest hedge funds lately. STI was in 22 hedge funds’ portfolios at the end of September. There were 25 hedge funds in our database with STI holdings at the end of the previous quarter. Our calculations also showed that sti isn’t among the 30 most popular stocks among hedge funds.

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 flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Joe Huber - Huber Capital Management

We’re going to take a look at the fresh hedge fund action surrounding SunTrust Banks, Inc. (NYSE:STI).

How are hedge funds trading SunTrust Banks, Inc. (NYSE:STI)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in STI over the last 13 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with STI Positions

More specifically, AQR Capital Management was the largest shareholder of SunTrust Banks, Inc. (NYSE:STI), with a stake worth $127.1 million reported as of the end of September. Trailing AQR Capital Management was Arrowstreet Capital, which amassed a stake valued at $86.9 million. Two Sigma Advisors, Huber Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Because SunTrust Banks, Inc. (NYSE:STI) has faced a decline in interest from the smart money, logic holds that there lies a certain “tier” of fund managers that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Charles Davidson and Joseph Jacobs’s Wexford Capital dropped the biggest stake of the 700 funds followed by Insider Monkey, totaling about $3.8 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund sold off about $3.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to SunTrust Banks, Inc. (NYSE:STI). These stocks are TE Connectivity Ltd. (NYSE:TEL), Roper Technologies, Inc. (NYSE:ROP), Concho Resources Inc. (NYSE:CXO), and Canadian Pacific Railway Limited (NYSE:CP). This group of stocks’ market values are similar to STI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TEL 30 1069097 1
ROP 32 861431 6
CXO 32 547181 2
CP 30 2732916 5
Average 31 1302656 3.5

View table here if you experience formatting issues.

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 $1.30 billion. That figure was $319 million in STI’s case. Roper Industries, Inc. (NYSE:ROP) is the most popular stock in this table. On the other hand TE Connectivity Ltd. (NYSE:TEL) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks SunTrust Banks, Inc. (NYSE:STI) is even less popular than TEL. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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