Is First Republic Bank (NYSE:FRC) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is First Republic Bank (NYSE:FRC) going to take off soon? Money managers are taking a bearish view. The number of long hedge fund positions fell by 3 in recent months. Our calculations also showed that FRC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ric Dillon of Diamond Hill Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the latest hedge fund action regarding First Republic Bank (NYSE:FRC).
How are hedge funds trading First Republic Bank (NYSE:FRC)?
Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in FRC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Select Equity Group held the most valuable stake in First Republic Bank (NYSE:FRC), which was worth $416.3 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $274.1 million worth of shares. Renaissance Technologies, GLG Partners, and Fisher Asset 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 Sloane Robinson Investment Management allocated the biggest weight to First Republic Bank (NYSE:FRC), around 4.08% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, earmarking 2.82 percent of its 13F equity portfolio to FRC.
Seeing as First Republic Bank (NYSE:FRC) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of money managers who sold off their positions entirely in the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $8.1 million in stock, and Daniel Johnson’s Gillson Capital was right behind this move, as the fund said goodbye to about $6.7 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to First Republic Bank (NYSE:FRC). We will take a look at W.W. Grainger, Inc. (NYSE:GWW), Trip.com Group Limited (NASDAQ:CTRP), Cheniere Energy, Inc. (NYSE:LNG), and Shinhan Financial Group Co., Ltd. (NYSE:SHG). This group of stocks’ market values are closest to FRC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GWW | 22 | 526223 | 1 |
| CTRP | 35 | 876950 | 8 |
| LNG | 40 | 3859554 | -3 |
| SHG | 4 | 8676 | -1 |
| Average | 25.25 | 1317851 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $1318 million. That figure was $815 million in FRC’s case. Cheniere Energy, Inc. (NYSE:LNG) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 4 bullish hedge fund positions. First Republic Bank (NYSE:FRC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on FRC as the stock returned 13.9% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
