Hedge Funds Seen Losing Interest in These Five Stocks

The financial sector was one of the worst performing sectors in the first quarter. While the S&P 500 managed to end the quarter up with marginal gains, the S&P 500 Financials index lost 5.6% during the same period. Due to this underperformance, it was natural for hedge funds to reduce their exposure to the sector during that period. However, some stocks within the financial sector saw their popularity among hedge funds decline much more than their peers and in this post we are going to focus on five such stocks.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

Euronet Worldwide, Inc. (NASDAQ:EEFT)

 – Investors with long positions (as of March 31) : 17

– Aggregate value of Investors’ holdings (as of March 31): $1.84 billion

The first stock in our list is Euronet Worldwide, Inc. (NASDAQ:EEFT). During the first quarter, the number of hedge funds tracked by us long Euronet Worldwide, Inc. (NASDAQ:EEFT) declined by 13 and the aggregate value of their holdings in it fell by nearly $36 million. Shares of the electronic payments provider fell heavily when the company came out with its fourth quarter results in early-February. However, they have rallied ever since and are currently trading up 8.50% year-to-date and very close to their lifetime highs. Following the better-than-expected first quarter numbers the company reported recently, on April 27, analysts at Avondale Partners reiterated their ‘Market Outperform’ rating on the stock and also upped their price target on it to $84 from $80. Funds that bucked the trend and added to their stake in Euronet Worldwide, Inc. (NASDAQ:EEFT) during the first quarter included George Mccabe‘s Portolan Capital Management, which increased its holding by 15% to 291,318 shares.

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Realogy Holdings Corp (NYSE:RLGY)

 – Investors with long positions (as of March 31) : 39

– Aggregate value of Investors’ holdings (as of March 31): $1.9 billion

While the ownership of Realogy Holdings Corp (NYSE:RLGY) among funds covered by us came down significantly by over 20% during the first quarter, the aggregate value of hedge funds’ holdings in it suffered only a marginal decline of 5.11% during that period. Realogy Holdings Corp (NYSE:RLGY)’s stock had recouped nearly all of the losses it suffered at the beginning of 2016 by April, but it again fell drastically at the beginning of this month in anticipation of the company’s first quarter earnings. Owing mostly to that decline, it is currently trading down over 10% year-to-date. For its fiscal 2016 first quarter, the company reported a per share loss of $0.12 on revenue of $1.13 billion versus analysts’ estimate of a per share loss of $0.11 on revenue of $1.13 billion.  Billionaire John Paulson‘s Paulson & Co didn’t make any changes to its stake in Realogy Holdings Corp during the first quarter and continued to hold 5.26 million shares of the company at the end of that period.

Chubb Ltd (NYSE:CB)

 – Investors with long positions (as of March 31) : 40

– Aggregate value of Investors’ holdings (as of March 31): $1.41 billion

Chubb Ltd (NYSE:CB) was formed after ACE Limited completed its acquisition of Chubb in January this year. Since a lot of hedge funds covered by us engage in merger arbitrage, it is not surprising that the ownership of Chubb Ltd (NYSE:CB) among hedge funds has seen a decline after the merger was completed. The number of funds long the stock declined by 10 and the aggregate value of their holdings in it fell by 43.2% during the first quarter. Since merger, Chubb Ltd (NYSE:CB)’s stock has appreciated by 8% and most analysts believe that it will continue its bull run. On May 12, analysts at Deutsche Bank reiterated their ‘Hold’ rating on the stock, but boosted their price target on it to $116 from $110. Chubb Ltd recently declared a quarterly dividend of $0.69 per share, which based on its current stock price represents an annual yield of 2.19%.

Citizens Financial Group Inc (NYSE:CFG)

 –Investors with long positions (as of March 31) : 51

– Aggregate value of Investors’ holdings (as of March 31): $1.25 billion

Moving on, the ownership of Citizens Financial Group Inc (NYSE:CFG) among funds covered by Insider Monkey fell by 16 and the aggregate value of their holdings in the company declined by 42.2%. The bank holding company has lost 14% of its market capitalization so far in 2016 and till recently its shares were trading below their IPO price of $21.50. The decline that the stock has seen this year has helped push its annual dividend yield to over 2% currently. On May 13, analysts at Wells Fargo upgraded the stock to ‘Outperform’ from ‘Market Perform’. Hedge funds that reduced their stake in the company during the first quarter included Porter Collins, Daniel Moses, and Vincent Daniel’s Seawolf Capital, which brought its holding down by 61% to 336,489 shares.

Synchrony Financial (NYSE:SYF)

 –Investors with long positions (as of March 31) : 67

– Aggregate value of Investors’ holdings (as of March 31): $3.45 billion

Though the number of hedge funds tracked by us long Synchrony Financial NYSE:SYF) came down by 15 and the aggregate value of their holdings in it plummeted by $860 during the first quarter, Synchrony Financial (NYSE:SYF) still remained a relatively popular financial stock among funds at the end of that period. Since its separation from GE in 2014, Synchrony Financial has been performing well as an independent entity. Analysts and investors expect the company to announce a dividend and/or share repurchase program along with its second quarter results in July. Their expectation stems from the company’s fourth quarter earnings call, in which CFO Brian Doubles had revealed that Synchrony would be submitting its capital plans in accordance with CCAR requirements with the Fed in April, which will be hopefully approved by June. The stock currently sports an average rating of ‘Buy’ and an average price target of $37.67 from the 21 leading analysts and research houses who track it. Billionaire Ken Griffin‘s Citadel Investment Group was one of the hedge funds that increased their stakes in the company during the first quarter, by 60% to 9.31 million shares.

Disclosure: None