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KeyCorp (KEY) vs. Hedge Fund Favorites in 2019

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

KeyCorp (NYSE:KEY) was in 28 hedge funds’ portfolios at the end of the third quarter of 2019. KEY shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 31 hedge funds in our database with KEY holdings at the end of the previous quarter. Our calculations also showed that KEY 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.

Clint Carlson of Carlson Capital

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. Now let’s review the recent hedge fund action surrounding KeyCorp (NYSE:KEY).

What have hedge funds been doing with KeyCorp (NYSE:KEY)?

At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2019. On the other hand, there were a total of 41 hedge funds with a bullish position in KEY a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of KeyCorp (NYSE:KEY), with a stake worth $133.5 million reported as of the end of September. Trailing Citadel Investment Group was Pzena Investment Management, which amassed a stake valued at $123.8 million. Millennium Management, Carlson Capital, and Balyasny Asset Management 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 Prospector Partners allocated the biggest weight to KeyCorp (NYSE:KEY), around 1.43% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, dishing out 1.4 percent of its 13F equity portfolio to KEY.

Since KeyCorp (NYSE:KEY) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedgies that decided to sell off their entire stakes in the third quarter. Interestingly, Ravi Chopra’s Azora Capital dropped the largest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $47.7 million in stock. Sander Gerber’s fund, Hudson Bay Capital Management, also said goodbye to its stock, about $7.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 3 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as KeyCorp (NYSE:KEY) but similarly valued. We will take a look at Centene Corporation (NYSE:CNC), Splunk Inc (NASDAQ:SPLK), CDW Corporation (NASDAQ:CDW), and CBRE Group, Inc. (NYSE:CBRE). This group of stocks’ market values match KEY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNC 55 2034586 -10
SPLK 32 168599 7
CDW 26 1168154 -3
CBRE 27 1095686 2
Average 35 1116756 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1117 million. That figure was $671 million in KEY’s case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand CDW Corporation (NASDAQ:CDW) is the least popular one with only 26 bullish hedge fund positions. KeyCorp (NYSE:KEY) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on KEY as the stock returned 42.8% in 2019 through December 23rd and outperformed the market by an even larger margin.
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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