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Valley National Bancorp (VLY): Hedge Funds In Wait-and-See Mode

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Valley National Bancorp (NASDAQ:VLY).

Valley National Bancorp (NASDAQ:VLY) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the second quarter of 2019. At the end of this article we will also compare VLY to other stocks including Weingarten Realty Investors (NYSE:WRI), PagerDuty, Inc. (NYSE:PD), and Apple Hospitality REIT Inc (NYSE:APLE) to get a better sense of its popularity. Our calculations also showed that VLY isn’t among the 30 most popular stocks among hedge funds (see the video below).
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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Lindenbaum Basswood Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the fresh hedge fund action encompassing Valley National Bancorp (NASDAQ:VLY).

How are hedge funds trading Valley National Bancorp (NASDAQ:VLY)?

At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in VLY a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with VLY Positions

Of the funds tracked by Insider Monkey, Renaissance Technologies has the number one position in Valley National Bancorp (NASDAQ:VLY), worth close to $3.6 million, amounting to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $2.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain Benjamin A. Smith’s Laurion Capital Management, Brandon Haley’s Holocene Advisors and Matthew Lindenbaum’s Basswood Capital.

Since Valley National Bancorp (NASDAQ:VLY) has experienced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of hedgies who were dropping their positions entirely heading into Q3. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $5.8 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $3.7 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Valley National Bancorp (NASDAQ:VLY). We will take a look at Weingarten Realty Investors (NYSE:WRI), PagerDuty, Inc. (NYSE:PD), Apple Hospitality REIT Inc (NYSE:APLE), and Chimera Investment Corporation (NYSE:CIM). This group of stocks’ market values are similar to VLY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WRI 20 102837 7
PD 22 68266 22
APLE 14 89183 1
CIM 13 116208 3
Average 17.25 94124 8.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $10 million in VLY’s case. PagerDuty, Inc. (NYSE:PD) is the most popular stock in this table. On the other hand Chimera Investment Corporation (NYSE:CIM) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Valley National Bancorp (NASDAQ:VLY) is even less popular than CIM. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on VLY, though not to the same extent, as the stock returned 1.8% during the third quarter and outperformed the market as well.

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

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