First Citizens BancShares Inc. (FCNCA): Hedge Funds Reversing Course

In this article you are going to find out whether hedge funds think First Citizens BancShares Inc. (NASDAQ:FCNCA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is First Citizens BancShares Inc. (NASDAQ:FCNCA) a splendid investment right now? Investors who are in the know are in a bearish mood. The number of long hedge fund positions fell by 6 recently. Our calculations also showed that FCNCA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the fresh hedge fund action encompassing First Citizens BancShares Inc. (NASDAQ:FCNCA).

Hedge fund activity in First Citizens BancShares Inc. (NASDAQ:FCNCA)

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in FCNCA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in First Citizens BancShares Inc. (NASDAQ:FCNCA) was held by AQR Capital Management, which reported holding $50.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $37.4 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Huber Capital Management allocated the biggest weight to First Citizens BancShares Inc. (NASDAQ:FCNCA), around 0.75% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, designating 0.58 percent of its 13F equity portfolio to FCNCA.

Since First Citizens BancShares Inc. (NASDAQ:FCNCA) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that slashed their full holdings last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest investment of the 750 funds monitored by Insider Monkey, valued at close to $6.4 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dropped about $1.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 6 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as First Citizens BancShares Inc. (NASDAQ:FCNCA) but similarly valued. These stocks are The Hanover Insurance Group, Inc. (NYSE:THG), Switch, Inc. (NYSE:SWCH), TCF Financial Corporation (NYSE:TCF), and Emcor Group Inc (NYSE:EME). This group of stocks’ market values resemble FCNCA’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $129 million in FCNCA’s case. The Hanover Insurance Group, Inc. (NYSE:THG) is the most popular stock in this table. On the other hand TCF Financial Corporation (NYSE:TCF) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks First Citizens BancShares Inc. (NASDAQ:FCNCA) is even less popular than TCF. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but managed to beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on FCNCA, though not to the same extent, as the stock returned 21.5% during the second quarter (through June 22nd) and outperformed the market as well.

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