The Federal Reserve’s decision not to go for a rate hike on Thursday has surely put downward pressure on the banking industry. Interest rates continue to be at historic lows, but they will have to be raised sooner or later. However, many doubt that there will be a rate hike by the end of the year, claiming that if the Fed did not raise rates at this meeting it is highly unlikely that they will do that at the next two meetings. Even so, the probability of seeing a rate hike this year still exists, and a rising-rate environment might create opportunities in the equities markets. Financial entities such as banks and insurance companies tend to represent great opportunities following rate increases, as they can earn more from the differential between what they pay savers and what they can earn from highly-rated debt. The strengthening U.S. economy, which usually comes along with a rate hike, also implies that banks’ non-performing assets tend to reduce. Having said that, we will move on to unveiling the list of the most popular finance stocks among the billionaires tracked by the Insider Monkey team. And one may eventually make some profits by betting on these finance stocks should the Fed raise rates in the upcoming meetings.
We pay attention to hedge funds’ and billionaires’ moves because our research has shown that they are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P 500 Index by around 61 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
5. Bank of New York Mellon Corp (NYSE:BK)
Billionaires with Long Positions (as of June 30): 12
Aggregate Value of Billionaires’ Holdings (as of June 30): $3.56 Billion
One more billionaire monitored by Insider Monkey owned Bank of New York Mellon Corp (NYSE:BK)’s stock during the second quarter, while the value of billionaires’ investments in the stock decreased by $285.23 million over the quarter. The Bank of New York Mellon’s stock dropped by 2.39% on Friday and have lost an additional 0.59% during Friday’s after-hours trading session, which widened the year-to-date loss to over 4%. It is no surprise that BNY Mellon has been impacted by the low interest rate environment, so activist investors have been “fighting” the company over its low returns and high costs. Nelson Peltz‘s Trian Fund Management won a seat on the company’s board last year, as the activist investor was seeking to assist the bank in improving the company’s operating performance. Richard McGuire’s Marcato Capital Management, which disclosed a stake of 18.36 million shares in BNY Mellon during the second quarter, released a letter to the bank’s shareholders back in May, claiming that a leadership change was essential in order to create significant long-term shareholder value.
4. Wells Fargo & Co (NYSE:WFC)
Billionaires with Long Positions (as of June 30): 12
Aggregate Value of Billionaires’ Holdings (as of June 30): $28.89 Billion
Wells Fargo & Co (NYSE:WFC) received a vote of confidence from billionaires as well, as the number of billionaires with stakes in the stock augmented by two during the quarter. Similarly, the value of the total stakes increased by $1.22 billion quarter-over-quarter. Unsurprisingly, the recent broader market sell-off in August and the slump on Friday have impacted the company’s stock performance quite noticeably, as it fell by 7% year-to-date. Wells Fargo could have greatly benefited from a potential rate hike, as the bank holds a large deposit base. However, the company’s CEO, John Stumpf, has been anticipating and preparing for this outcome, saying that: ”we actually went out last quarter and said we think rates could be lower for longer”. Warren Buffett’s Berkshire Hathaway is by far the largest shareholder of Wells Fargo & Co (NYSE:WFC) within our database, holding a sizable stake of 470.29 million shares. 3. American International Group Inc. (NYSE:AIG)
Billionaires with Long Positions (as of June 30): 14
Aggregate Value of Billionaires’ Holdings (as of June 30): $2.14 Billion
The number of billionaires with positions in American International Group Inc. (NYSE:AIG) increased by one quarter-over-quarter, whereas the value of these positions shrank by $773.26 million. The shares of AIG closed 1.11% in the red on Friday, but have narrowed down this loss during Friday’s after-market trading by almost a half. Even so, the stock has still managed to deliver a year-to-date return of slightly over 3%. Just recently, a U.S. appeals court rejected AIG’s efforts to recuperate $48.2 million of foreign tax credits that the IRS did not allow. In the meantime, Paulson & Co, founded by John Paulson, reported owning 14.60 million shares of American International Group Inc. (NYSE:AIG) in its 13F filing for the June quarter.
2. Bank of America Corp (NYSE:BAC)
Billionaires with Long Positions (as of June 30): 14
Aggregate Value of Billionaires’ Holdings (as of June 30): $1.71 Billion
Three more billionaires had Bank of America Corp (NYSE:BAC) in their portfolios at the end of the second quarter compared to the previous trimester. By the same token, the value of billionaires’ stake in the stock went up by $275.77 million during the recent quarter. Bond trading volume is anticipated to reduce following the Fed’s decision to keep interest rates unchanged, which will surely have an impact on Bank of America Corp (NYSE:BAC)’s bottom-line as well. Most investors tend to avoid taking too much risk in bonds until they get an idea about when the Fed will start its tightening campaign. Ken Fisher’s Fisher Asset Management owns 42.69 million shares of BAC as of June 30, accounting for 1.41% of its portfolio.
1. Citigroup Inc (NYSE:C)
Billionaires with Long Positions (as of June 30): 19
Aggregate Value of Billionaires’ Holdings (as of June 30): $2.61 Billion
Citigroup Inc (NYSE:C) is by far the most favorite financial stock among the billionaires we follow, with 19 investors holding stakes in the stock at the end of June, up by one over the quarter. However, the overall value of these stakes decreased by $375.02 million between April and June. Citigroup anticipates its trading revenue to fall by 5% in the third quarter, according to its Chief Financial Officer, John Gerspach. It is also worth noting that the increased volatility in the U.S. equity markets is expected to put downward pressure on Wall Street banks’ third-quarter results. In the meantime, the shares of Citigroup are in the red this year, losing slightly over 7% year-to-date. Boykin Curry’s Eagle Capital Management is the largest shareholder of Citigroup Inc (NYSE:C) within our database, holding 24.37 million shares.
Disclosure: None
