Should I Buy State Street Corporation (STT)?

In this article you are going to find out whether hedge funds think State Street Corporation (NYSE:STT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is State Street Corporation (NYSE:STT) worth your attention right now? Money managers were getting more optimistic. The number of long hedge fund bets inched up by 1 recently. State Street Corporation (NYSE:STT) was in 32 hedge funds’ portfolios at the end of March. The all time high for this statistic is 45. Our calculations also showed that STT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s analyze the key hedge fund action regarding State Street Corporation (NYSE:STT).

Do Hedge Funds Think STT Is A Good Stock To Buy Now?

At first quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in STT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Yacktman Asset Management, managed by Donald Yacktman, holds the biggest position in State Street Corporation (NYSE:STT). Yacktman Asset Management has a $298.3 million position in the stock, comprising 3.1% of its 13F portfolio. The second largest stake is held by GAMCO Investors, managed by Mario Gabelli, which holds a $81.4 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism comprise Cliff Asness’s AQR Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to State Street Corporation (NYSE:STT), around 4.61% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, dishing out 3.22 percent of its 13F equity portfolio to STT.

As industrywide interest jumped, key hedge funds have jumped into State Street Corporation (NYSE:STT) headfirst. PAR Capital Management, managed by Paul Reeder and Edward Shapiro, established the most valuable position in State Street Corporation (NYSE:STT). PAR Capital Management had $33.6 million invested in the company at the end of the quarter. Daniel Johnson’s Gillson Capital also initiated a $20.8 million position during the quarter. The following funds were also among the new STT investors: Gregg Moskowitz’s Interval Partners, Clint Carlson’s Carlson Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as State Street Corporation (NYSE:STT) but similarly valued. These stocks are WEC Energy Group, Inc. (NYSE:WEC), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), AMETEK, Inc. (NYSE:AME), ANSYS, Inc. (NASDAQ:ANSS), Otis Worldwide Corporation (NYSE:OTIS), Valero Energy Corporation (NYSE:VLO), and Liberty Broadband Corp (NASDAQ:LBRDA). This group of stocks’ market values are similar to STT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WEC 17 184448 -8
WLTW 66 5189453 8
AME 32 909796 1
ANSS 33 1503462 -7
OTIS 52 2750826 -7
VLO 41 462502 3
LBRDA 23 774868 -3
Average 37.7 1682194 -1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.7 hedge funds with bullish positions and the average amount invested in these stocks was $1682 million. That figure was $866 million in STT’s case. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is the most popular stock in this table. On the other hand WEC Energy Group, Inc. (NYSE:WEC) is the least popular one with only 17 bullish hedge fund positions. State Street Corporation (NYSE:STT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for STT is 42.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and surpassed the market again by 6 percentage points. Unfortunately STT wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); STT investors were disappointed as the stock returned 1% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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