While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Citigroup Inc. (NYSE:C) and see how the stock performed in comparison to hedge funds’ consensus picks.
Citigroup Inc. (NYSE:C) has experienced an increase in hedge fund interest of late. C was in 94 hedge funds’ portfolios at the end of the third quarter of 2019. There were 83 hedge funds in our database with C positions at the end of the previous quarter. Our calculations also showed that C currently ranks 16th among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the eyes of most shareholders, hedge funds are perceived as worthless, outdated investment tools of the past. While there are over 8000 funds trading at present, Our experts look at the aristocrats of this club, about 750 funds. Most estimates calculate that this group of people direct the lion’s share of the smart money’s total asset base, and by tailing their inimitable investments, Insider Monkey has determined several investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Jeffrey Ubben of ValueAct Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a look at the latest hedge fund action encompassing Citigroup Inc. (NYSE:C).
Hedge fund activity in Citigroup Inc. (NYSE:C)
At Q3’s end, a total of 94 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in C over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, ValueAct Capital held the most valuable stake in Citigroup Inc. (NYSE:C), which was worth $1936 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $1867.7 million worth of shares. Greenhaven Associates, Diamond Hill Capital, and Pzena Investment Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position ValueAct Capital allocated the biggest weight to Citigroup Inc. (NYSE:C), around 20.89% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, setting aside 16.9 percent of its 13F equity portfolio to C.
Consequently, some big names were leading the bulls’ herd. Kahn Brothers, established the most valuable position in Citigroup Inc. (NYSE:C). Kahn Brothers had $73.2 million invested in the company at the end of the quarter. Jeffrey Gendell’s Tontine Asset Management also initiated a $49 million position during the quarter. The other funds with brand new C positions are Ravi Chopra’s Azora Capital, Peter Seuss’s Prana Capital Management, and Israel Englander’s Millennium Management.
Let’s check out hedge fund activity in other stocks similar to Citigroup Inc. (NYSE:C). We will take a look at HSBC Holdings plc (NYSE:HSBC), Abbott Laboratories (NYSE:ABT), NIKE, Inc. (NYSE:NKE), and Medtronic, plc (NYSE:MDT). This group of stocks’ market caps resemble C’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HSBC | 14 | 1124229 | -2 |
| ABT | 58 | 2062528 | 11 |
| NKE | 63 | 2304473 | 12 |
| MDT | 50 | 2120499 | 1 |
| Average | 46.25 | 1902932 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.25 hedge funds with bullish positions and the average amount invested in these stocks was $1903 million. That figure was $10271 million in C’s case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Citigroup Inc. (NYSE:C) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on C as the stock returned 55.6% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
