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Were Hedge Funds Right About Souring On State Street Corporation (STT)?

State Street Corporation (NYSE:STT) has experienced a decrease in enthusiasm from smart money in recent months. STT was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 35 hedge funds in our database with STT holdings at the end of the previous quarter. Our calculations also showed that STT isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

BRIDGEWATER ASSOCIATES

We’re going to go over the fresh hedge fund action surrounding State Street Corporation (NYSE:STT).

How are hedge funds trading State Street Corporation (NYSE:STT)?

At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in STT over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

STT_mar2019

More specifically, Citadel Investment Group was the largest shareholder of State Street Corporation (NYSE:STT), with a stake worth $177.9 million reported as of the end of September. Trailing Citadel Investment Group was Yacktman Asset Management, which amassed a stake valued at $153.6 million. Millennium Management, GAMCO Investors, and Lakewood Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as State Street Corporation (NYSE:STT) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of money managers who sold off their positions entirely last quarter. Interestingly, David Tepper’s Appaloosa Management LP dropped the largest investment of all the hedgies watched by Insider Monkey, totaling an estimated $99.3 million in stock. Doug Silverman and Alexander Klabin’s fund, Senator Investment Group, also said goodbye to its stock, about $41.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to State Street Corporation (NYSE:STT). We will take a look at Worldpay, Inc. (NYSE:WP), Electronic Arts Inc. (NASDAQ:EA), Consolidated Edison, Inc. (NYSE:ED), and Southern Copper Corporation (NYSE:SCCO). This group of stocks’ market caps match STT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WP 48 2361851 -12
EA 57 2283589 -22
ED 23 1251572 12
SCCO 15 231144 -2
Average 35.75 1532039 -6

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1532 million. That figure was $911 million in STT’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Southern Copper Corporation (NYSE:SCCO) is the least popular one with only 15 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. 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately STT wasn’t in this group. Hedge funds that bet on STT were disappointed as the stock returned 11.1% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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