Hedge Funds Aren’t Crazy About Regions Financial Corporation (RF) Anymore

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Regions Financial Corporation (NYSE:RF).

Is Regions Financial Corporation (NYSE:RF) a buy, sell, or hold? Prominent investors are selling. The number of long hedge fund positions went down by 9 recently. At the end of this article we will also compare RF to other stocks including Lincoln National Corporation (NYSE:LNC), Vulcan Materials Company (NYSE:VMC), and Host Hotels and Resorts Inc (NYSE:HST) to get a better sense of its popularity.

If you’d ask most traders, hedge funds are perceived as underperforming, old investment vehicles of the past. While there are over 8000 funds in operation today, Our experts look at the crème de la crème of this group, about 700 funds. It is estimated that this group of investors control the lion’s share of the smart money’s total asset base, and by shadowing their inimitable picks, Insider Monkey has unearthed a few investment strategies that have historically beaten the market. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Keeping this in mind, let’s take a glance at the fresh action encompassing Regions Financial Corporation (NYSE:RF).

What does the smart money think about Regions Financial Corporation (NYSE:RF)?

At the Q3’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the second quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the biggest position in Regions Financial Corporation (NYSE:RF), worth close to $205.2 million, accounting for 1.3% of its total 13F portfolio. The second most bullish fund manager is Ken Griffin of Citadel Investment Group, with a $115.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Clint Carlson’s Carlson Capital and John Brennan’s Sirios Capital Management.

Seeing as Regions Financial Corporation (NYSE:RF) has faced declining sentiment from hedge fund managers, logic holds that there exists a select few hedgies that decided to sell off their full holdings heading into Q4. At the top of the heap, David Tepper’s Appaloosa Management LP said goodbye to the biggest position of the 700 funds watched by Insider Monkey, worth close to $31.4 million in stock. Matthew Knauer and Mina Faltas’s fund, Nokota Management, also said goodbye to its stock, about $18.1 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 9 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Regions Financial Corporation (NYSE:RF). These stocks are Lincoln National Corporation (NYSE:LNC), Vulcan Materials Company (NYSE:VMC), Host Hotels and Resorts Inc (NYSE:HST), and Concho Resources Inc. (NYSE:CXO). This group of stocks’ market caps match RF’s market cap.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $945 million, above the $873 million figure in RF’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table, while Host Hotels and Resorts Inc (NYSE:HST) is the least popular one with only 29 bullish hedge fund positions. Regions Financial Corporation (NYSE:RF) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard VMC might be a better candidate to consider a long position.