Why Doesn’t Smart Money Like Sumitomo Mitsui Financial Grp, Inc. (ADR) (SMFG)?

Hedge funds are not perfect. They have their bad picks just like everyone else. Micron, a stock hedge funds have loved, lost 50% during the last 12 months ending in October 30. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% in the same time period, vs. a gain of 5.2% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Sumitomo Mitsui Financial Grp, Inc. (ADR) (NYSE:SMFG).

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Is Sumitomo Mitsui Financial Grp, Inc. (ADR) (NYSE:SMFG) ready to rally soon? The best stock pickers are reducing their bets on the stock and are severely underweight. The number of long hedge fund positions went down by three lately. At the end of this article we will also compare SMFG to other stocks including Texas Instruments Incorporated (NASDAQ:TXN), BHP Billiton Limited (ADR) (NYSE:BHP), and Time Warner Cable Inc (NYSE:TWC) to get a better sense of its popularity.

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In the eyes of most investors, hedge funds are assumed to be underperforming, old financial tools of yesteryear. While there are over 8,000 funds trading at present, hedge fund experts at Insider Monkey choose to focus on the elite of this group, around 700 funds. It is estimated that this group of investors direct most of the hedge fund industry’s total capital, and by monitoring their top equity investments, Insider Monkey has spotted a few investment strategies that have historically beaten the broader indices. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points a year for a decade in its back tests.

Keeping this in mind, we’re going to take a peek at the recent action encompassing Sumitomo Mitsui Financial Grp, Inc. (ADR) (NYSE:SMFG).

Hedge fund activity in Sumitomo Mitsui Financial Grp, Inc. (ADR) (NYSE:SMFG)

Heading into Q4, a total of 14 of the hedge funds tracked by Insider Monkey were long in this stock, down by 18% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings considerably.

When looking at the hedgies followed by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the biggest position in Sumitomo Mitsui Financial Grp, Inc. (ADR) (NYSE:SMFG). Renaissance Technologies has a $9.7 million position in the stock, comprising less than 0.1% of its 13F portfolio. The second-largest stake is held by D E Shaw, founded by David E. Shaw, which holds an $8.4 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds with similar optimism include William B. Gray’s Orbis Investment Management, Louis Bacon’s Moore Global Investments, and Israel Englander’s Millennium Management.

Since Sumitomo Mitsui Financial Grp, Inc. (ADR) (NYSE:SMFG) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers that elected to cut their positions entirely heading into Q4. Interestingly, Kevin D. Eng’s Columbus Hill Capital Management dumped the largest position of the “upper crust” of funds monitored by Insider Monkey, worth about $10 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $0.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by three funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Sumitomo Mitsui Financial Grp, Inc. (ADR) (NYSE:SMFG). We will take a look at Texas Instruments Incorporated (NASDAQ:TXN), BHP Billiton Limited (ADR) (NYSE:BHP), Time Warner Cable Inc (NYSE:TWC), and Occidental Petroleum Corporation (NYSE:OXY). This group of stocks’ market valuations are similar to SMFG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TXN 35 710030 2
BHP 20 132412 1
TWC 107 16157890 2
OXY 44 1371938 -2

As you can see these stocks had an average of 51.5 hedge funds with bullish positions and the average amount invested in these stocks was $4.59 billion. That trounced the mere $36 million in  Sumitomo Mitsui Financial shares that were held by the investors that we track, which accounted for just 0.10% of its outstanding shares. Time Warner Cable Inc (NYSE:TWC) is the most popular stock in this table. On the other hand BHP Billiton Limited (ADR) (NYSE:BHP) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Sumitomo Mitsui Financial Grp, Inc. (ADR) (NYSE:SMFG) is even less popular than BHP. Considering that hedge funds aren’t fond of this stock in relation to its market cap, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock (and is in fact, greatly underweight).