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Northern Trust Corporation (NTRS): Hedge Funds Caught Wrong Footed

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Northern Trust Corporation (NASDAQ:NTRS) based on those filings.

Northern Trust Corporation (NASDAQ:NTRS) has experienced an increase in hedge fund interest lately. NTRS was in 35 hedge funds’ portfolios at the end of December. There were 23 hedge funds in our database with NTRS holdings at the end of the previous quarter. Our calculations also showed that NTRS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ 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 41 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.

John Rogers Ariel Investments

John Rogers of Ariel Investments

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the key hedge fund action surrounding Northern Trust Corporation (NASDAQ:NTRS).

Hedge fund activity in Northern Trust Corporation (NASDAQ:NTRS)

At Q4’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 52% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NTRS over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in Northern Trust Corporation (NASDAQ:NTRS) was held by Ariel Investments, which reported holding $189.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $62.6 million position. Other investors bullish on the company included GAMCO Investors, Millennium Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position MD Sass allocated the biggest weight to Northern Trust Corporation (NASDAQ:NTRS), around 2.95% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, setting aside 2.38 percent of its 13F equity portfolio to NTRS.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, created the most valuable position in Northern Trust Corporation (NASDAQ:NTRS). Citadel Investment Group had $62.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $18.9 million position during the quarter. The other funds with brand new NTRS positions are Ravi Chopra’s Azora Capital, Ray Dalio’s Bridgewater Associates, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Northern Trust Corporation (NASDAQ:NTRS) but similarly valued. These stocks are Weyerhaeuser Co. (NYSE:WY), IDEXX Laboratories, Inc. (NASDAQ:IDXX), M&T Bank Corporation (NYSE:MTB), and Corning Incorporated (NYSE:GLW). This group of stocks’ market valuations are similar to NTRS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WY 30 323789 0
IDXX 37 540337 4
MTB 32 1357139 0
GLW 35 221721 5
Average 33.5 610747 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $611 million. That figure was $486 million in NTRS’s case. IDEXX Laboratories, Inc. (NASDAQ:IDXX) is the most popular stock in this table. On the other hand Weyerhaeuser Co. (NYSE:WY) is the least popular one with only 30 bullish hedge fund positions. Northern Trust Corporation (NASDAQ:NTRS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately NTRS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NTRS were disappointed as the stock returned -32.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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