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Were Hedge Funds Right About The Bank of New York Mellon Corporation (BK)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let’s take a look at whether The Bank of New York Mellon Corporation (NYSE:BK) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

The Bank of New York Mellon Corporation (NYSE:BK) investors should be aware of an increase in hedge fund interest lately. BK was in 58 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 55 hedge funds in our database with BK positions at the end of the previous quarter. Our calculations also showed that BK 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).

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’ 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 S&P 500 ETFs by 41 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 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.

TRIAN PARTNERS

Nelson Peltz of Trian Partners

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. 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. Keeping this in mind let’s take a look at the new hedge fund action encompassing The Bank of New York Mellon Corporation (NYSE:BK).

What have hedge funds been doing with The Bank of New York Mellon Corporation (NYSE:BK)?

At Q4’s end, a total of 58 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in BK 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.

Among these funds, Berkshire Hathaway held the most valuable stake in The Bank of New York Mellon Corporation (NYSE:BK), which was worth $4014.6 million at the end of the third quarter. On the second spot was Trian Partners which amassed $611.7 million worth of shares. Citadel Investment Group, Millennium Management, and D E Shaw 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 LFL Advisers allocated the biggest weight to The Bank of New York Mellon Corporation (NYSE:BK), around 7.04% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, dishing out 6.55 percent of its 13F equity portfolio to BK.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, assembled the most valuable position in The Bank of New York Mellon Corporation (NYSE:BK). Moore Global Investments had $36.5 million invested in the company at the end of the quarter. Ravi Chopra’s Azora Capital also initiated a $18.4 million position during the quarter. The other funds with brand new BK positions are Renaissance Technologies, Ray Dalio’s Bridgewater Associates, and David Harding’s Winton Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Bank of New York Mellon Corporation (NYSE:BK) but similarly valued. We will take a look at Shopify Inc (NYSE:SHOP), Simon Property Group, Inc (NYSE:SPG), UBS Group AG (NYSE:UBS), and Activision Blizzard, Inc. (NASDAQ:ATVI). This group of stocks’ market caps resemble BK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHOP 30 3075550 -7
SPG 26 579726 -3
UBS 14 1045423 -2
ATVI 76 2811204 3
Average 36.5 1877976 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1878 million. That figure was $6711 million in BK’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand UBS Group AG (NYSE:UBS) is the least popular one with only 14 bullish hedge fund positions. The Bank of New York Mellon Corporation (NYSE:BK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 lost 1.0% in 2020 through April 20th but beat the market by 11 percentage points. Unfortunately BK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BK were disappointed as the stock returned -27.2% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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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