Were Hedge Funds Right About Northern Trust Corporation (NTRS)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Northern Trust Corporation (NASDAQ:NTRS) and determine whether hedge funds had an edge regarding this stock.

Northern Trust Corporation (NASDAQ:NTRS) was in 27 hedge funds’ portfolios at the end of March. NTRS has seen a decrease in activity from the world’s largest hedge funds of late. There were 35 hedge funds in our database with NTRS positions 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 Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s take a gander at the key hedge fund action surrounding Northern Trust Corporation (NASDAQ:NTRS).

How are hedge funds trading Northern Trust Corporation (NASDAQ:NTRS)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in NTRS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Northern Trust Corporation (NASDAQ:NTRS) was held by Ariel Investments, which reported holding $145.8 million worth of stock at the end of September. It was followed by Kingstown Capital Management with a $37.7 million position. Other investors bullish on the company included GAMCO Investors, AQR Capital Management, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Kingstown Capital Management allocated the biggest weight to Northern Trust Corporation (NASDAQ:NTRS), around 5.8% of its 13F portfolio. MD Sass is also relatively very bullish on the stock, designating 3.17 percent of its 13F equity portfolio to NTRS.

Seeing as Northern Trust Corporation (NASDAQ:NTRS) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds that elected to cut their entire stakes in the first quarter. At the top of the heap, Ravi Chopra’s Azora Capital sold off the largest position of the 750 funds followed by Insider Monkey, totaling about $12.4 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $4.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 8 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Northern Trust Corporation (NASDAQ:NTRS). These stocks are Church & Dwight Co., Inc. (NYSE:CHD), Smith & Nephew plc (NYSE:SNN), Tiffany & Co. (NYSE:TIF), and Keysight Technologies Inc (NYSE:KEYS). This group of stocks’ market valuations are closest to NTRS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHD 36 506943 -1
SNN 9 89054 6
TIF 69 2915572 7
KEYS 40 990732 -9
Average 38.5 1125575 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.5 hedge funds with bullish positions and the average amount invested in these stocks was $1126 million. That figure was $330 million in NTRS’s case. Tiffany & Co. (NYSE:TIF) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 9 bullish hedge fund positions. Northern Trust Corporation (NASDAQ:NTRS) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately NTRS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NTRS investors were disappointed as the stock returned 6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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