Should I Avoid Synchrony Financial (SYF)?

·6 min read

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Synchrony Financial (NYSE:SYF).

Is Synchrony Financial (NYSE:SYF) a healthy stock for your portfolio? The smart money was reducing their bets on the stock. The number of bullish hedge fund bets fell by 4 in recent months. Synchrony Financial (NYSE:SYF) was in 35 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 82. Our calculations also showed that SYF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 39 hedge funds in our database with SYF holdings at the end of June.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let's take a glance at the fresh hedge fund action regarding Synchrony Financial (NYSE:SYF).

Do Hedge Funds Think SYF Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SYF over the last 25 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SYF A Good Stock To Buy?
Is SYF A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in Synchrony Financial (NYSE:SYF). Arrowstreet Capital has a $583.9 million position in the stock, comprising 0.7% of its 13F portfolio. On Arrowstreet Capital's heels is Paul Reeder and Edward Shapiro of PAR Capital Management, with a $361.7 million position; 8.7% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions encompass Noam Gottesman's GLG Partners, Jeremy Hosking's Hosking Partners and George Soros's Soros Fund Management. In terms of the portfolio weights assigned to each position PAR Capital Management allocated the biggest weight to Synchrony Financial (NYSE:SYF), around 8.68% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, designating 2.41 percent of its 13F equity portfolio to SYF.

Because Synchrony Financial (NYSE:SYF) has witnessed a decline in interest from hedge fund managers, it's safe to say that there is a sect of money managers who were dropping their entire stakes last quarter. Intriguingly, James Parsons's Junto Capital Management said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, valued at about $53.9 million in stock. Anand Parekh's fund, Alyeska Investment Group, also cut its stock, about $30.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Synchrony Financial (NYSE:SYF) but similarly valued. We will take a look at WEC Energy Group, Inc. (NYSE:WEC), Occidental Petroleum Corporation (NYSE:OXY), Zebra Technologies Corporation (NASDAQ:ZBRA), PACCAR Inc (NASDAQ:PCAR), Delta Air Lines, Inc. (NYSE:DAL), Skyworks Solutions Inc (NASDAQ:SWKS), and Holdings, Inc. (NYSE:BILL). This group of stocks' market caps match SYF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WEC,31,432498,4 OXY,60,3189745,3 ZBRA,39,1304604,5 PCAR,26,472066,-2 DAL,50,1217986,1 SWKS,36,805593,-1 BILL,65,4287204,12 Average,43.9,1672814,3.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.9 hedge funds with bullish positions and the average amount invested in these stocks was $1673 million. That figure was $1377 million in SYF's case. Holdings, Inc. (NYSE:BILL) is the most popular stock in this table. On the other hand PACCAR Inc (NASDAQ:PCAR) is the least popular one with only 26 bullish hedge fund positions. Synchrony Financial (NYSE:SYF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SYF is 25.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately SYF wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SYF investors were disappointed as the stock returned -7.9% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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