Markets

The best-performing hedge funds are piling into these financial shares

Key Points
  • Symmetric.io grades the stock-picking ability of nearly 1,000 hedge funds in its database with a proprietary indicator of performance called StockAlpha.
  • The data reflects third-quarter holdings that hedge funds disclosed last week in required quarterly filings.
  • A big chunk of the best-performing funds piled into financial stocks by the end of the third quarter.
Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE).
Drew Angerer | Getty Images

Bank stocks may seem far from hedge fund darlings, but some of the best and under-the-radar managers in the industry are doubling down on them.

Every quarter, investors get a glimpse into an otherwise opaque arena as hedge funds file their long positions with the Securities and Exchange Commission, and the information is disclosed 45 days after each quarter ends. CNBC used Symmetric.io, a hedge fund tracking firm, to find the top-performing hedge funds and see where the smart money placed its wagers in the third quarter.

In fact, the best-performing hedge funds with a track record of beating the market are not managed by big names such as David Einhorn and Bill Ackman. The top 10 funds from Symmetric are mostly run by lesser-known managers.The data reflects third-quarter holdings that hedge funds disclosed last week in required quarterly filings.

Symmetric.io grades the stock-picking ability of nearly 1,000 hedge funds in its database with a proprietary indicator of performance called StockAlpha. It is derived by comparing the performance of equities in the fund with that of a sector exchange-traded fund.

VIDEO3:2603:26
This top banking stock could be best way to play the financials rally

A big chunk of of the best funds piled into financial stocks by the end of third quarter. Carlson Capital built 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 loved by the best-performing hedge funds.

The bets on bank stocks have lifted the funds' performance as the financials sector has been the biggest winner among the 11 S&P 500 groupings for the past three months, rallying more than 11% during the period. The group's strength also has led the broad market to record highs in recent weeks.

Morgan Stanley has climbed more than 22% in the past three months, while Bank of New York Mellon has returned 14%. A rebound in yields in recent months coincided with the rally in bank stocks.

Besides financials, the funds' top new positions also include certain companies in real estate and consumer discretionary. Long Pond Capital added $77 million worth of Las Vegas Sands and REITs such as Kilroy Realty and Vereit. Soroban Capital Partners built new stakes in Linde and Domino's Pizza.