At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards KeyCorp (NYSE:KEY) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is KeyCorp (NYSE:KEY) a buy here? Hedge funds were getting more optimistic. The number of long hedge fund positions inched up by 7 lately. Our calculations also showed that KEY 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.
To most market participants, hedge funds are perceived as slow, outdated financial vehicles of years past. While there are greater than 8000 funds with their doors open at present, Our researchers choose to focus on the upper echelon of this club, about 850 funds. It is estimated that this group of investors handle the lion's share of all hedge funds' total capital, and by keeping track of their unrivaled picks, Insider Monkey has unearthed many investment strategies that have historically outperformed Mr. Market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Richard S. Pzena of Pzena Investment Management[/caption]
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. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to review the new hedge fund action surrounding KeyCorp (NYSE:KEY).
How have hedgies been trading KeyCorp (NYSE:KEY)?
At Q1's end, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in KEY a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena's Pzena Investment Management has the number one position in KeyCorp (NYSE:KEY), worth close to $82.6 million, accounting for 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $70.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish include Phill Gross and Robert Atchinson's Adage Capital Management, Clint Carlson's Carlson Capital and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Elizabeth Park Capital Management allocated the biggest weight to KeyCorp (NYSE:KEY), around 3.24% of its 13F portfolio. Fourthstone LLC is also relatively very bullish on the stock, dishing out 1.33 percent of its 13F equity portfolio to KEY.
As industrywide interest jumped, key money managers have jumped into KeyCorp (NYSE:KEY) headfirst. Carlson Capital, managed by Clint Carlson, initiated the most outsized position in KeyCorp (NYSE:KEY). Carlson Capital had $35.3 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $8.2 million position during the quarter. The other funds with brand new KEY positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Steve Cohen's Point72 Asset Management, and Phil Stone's Fourthstone LLC.
Let's now take a look at hedge fund activity in other stocks similar to KeyCorp (NYSE:KEY). We will take a look at HEICO Corporation (NYSE:HEI), TELUS Corporation (NYSE:TU), Ulta Beauty, Inc. (NASDAQ:ULTA), and The Liberty SiriusXM Group (NASDAQ:LSXMA). This group of stocks' market caps are similar to KEY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HEI,39,602163,-18 TU,15,197962,2 ULTA,46,925549,5 LSXMA,48,1087620,-2 Average,37,703324,-3.25 [/table]
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $703 million. That figure was $349 million in KEY's case. The Liberty SiriusXM Group (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 15 bullish hedge fund positions. KeyCorp (NYSE:KEY) 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 gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately KEY wasn't nearly as popular as these 10 stocks and hedge funds that were betting on KEY were disappointed as the stock returned 19.3% 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.
