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Were Hedge Funds Right About Selling S & T Bancorp Inc (STBA)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether S & T Bancorp Inc (NASDAQ:STBA) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

S & T Bancorp Inc (NASDAQ:STBA) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that STBA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. With all of this in mind let’s review the latest hedge fund action encompassing S & T Bancorp Inc (NASDAQ:STBA).

How are hedge funds trading S & T Bancorp Inc (NASDAQ:STBA)?

Heading into the first quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in STBA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in S & T Bancorp Inc (NASDAQ:STBA), which was worth $2.5 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $1.5 million worth of shares. Renaissance Technologies, D E Shaw, and Winton Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to S & T Bancorp Inc (NASDAQ:STBA), around 0.12% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to STBA.

Seeing as S & T Bancorp Inc (NASDAQ:STBA) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies that slashed their positions entirely in the third quarter. It’s worth mentioning that Donald Sussman’s Paloma Partners said goodbye to the largest position of the 750 funds watched by Insider Monkey, comprising an estimated $1 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dumped its stock, about $0.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to S & T Bancorp Inc (NASDAQ:STBA). We will take a look at Linx S.A. (NYSE:LINX), Enerplus Corp (NYSE:ERF), InVitae Corporation (NYSE:NVTA), and Rent-A-Center Inc (NASDAQ:RCII). All of these stocks’ market caps resemble STBA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LINX 4 31516 -1
ERF 20 168554 3
NVTA 13 277519 0
RCII 25 435978 -4
Average 15.5 228392 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $228 million. That figure was $9 million in STBA’s case. Rent-A-Center Inc (NASDAQ:RCII) is the most popular stock in this table. On the other hand Linx S.A. (NYSE:LINX) is the least popular one with only 4 bullish hedge fund positions. S & T Bancorp Inc (NASDAQ:STBA) 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 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately STBA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); STBA investors were disappointed as the stock returned -34.6% 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 most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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