Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE).
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Bank stocks may seem far from being the darlings of hedge funds, but some of the best and most discreet managers in the industry are doubling down.
Each quarter, investors get a glimpse of an otherwise opaque arena as hedge funds file their long positions with the Securities and Exchange Commission, and information is released 45 days after the end of each quarter. CNBC used Symmetric.io, a hedge fund tracking company, to find top performing hedge funds and see where smart money placed its bets in the third quarter.
In fact, the top performing hedge funds with a history of winning the market are not managed by big names like David Einhorn and Bill Ackman. Symmetric’s top 10 funds are mostly managed by lesser-known managers. The data reflects third-quarter holdings that hedge funds disclosed last week in required quarterly documents.
Symmetric.io assesses the stock picking capacity of nearly 1,000 hedge funds in its database with a proprietary performance indicator called StockAlpha. It is obtained by comparing the performance of the fund’s shares with that of a sector-based exchange-traded fund.
Much of the best funds were stacked in financial stocks at the end of the third quarter. Carlson Capital made a $ 69 million investment in Morgan Stanley shares and a $ 53 million stake in Bank of New York Mellon. Zions Bancorp, Noah Holdings, StoneCo and HarborOne Bancorp were also popular with top performing hedge funds.
Bets on bank stocks improved fund performance, with the financial sector having been the biggest winner among the 11 groups in the S&P 500 in the past three months, rising more than 11% during the period. The strength of the group has also driven the entire market to record highs in recent weeks.
Morgan Stanley has climbed over 22% in the past three months, while Bank of New York Mellon has returned 14%. The rebound in rates in recent months has coincided with the rebound in bank stocks.
In addition to financials, the largest new fund positions also include some real estate and consumer discretionary companies. Long Pond Capital added $ 77 million from Las Vegas Sands and REITs such as Kilroy Realty and Vereit. Soroban Capital Partners took new stakes in Linde and Domino’s Pizza.