As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about First Republic Bank (NYSE:FRC).
Is First Republic Bank (NYSE:FRC) a worthy investment right now? The smart money is betting on the stock. The number of bullish hedge fund bets inched up by 4 in recent months. Our calculations also showed that FRC isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to 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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the recent hedge fund action encompassing First Republic Bank (NYSE:FRC).
What does smart money think about First Republic Bank (NYSE:FRC)?
At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the first quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in FRC 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.
Among these funds, Select Equity Group held the most valuable stake in First Republic Bank (NYSE:FRC), which was worth $318.2 million at the end of the second quarter. On the second spot was Diamond Hill Capital which amassed $246.6 million worth of shares. Moreover, GLG Partners, Fisher Asset Management, and Polar Capital were also bullish on First Republic Bank (NYSE:FRC), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, assembled the largest position in First Republic Bank (NYSE:FRC). Millennium Management had $8.1 million invested in the company at the end of the quarter. Daniel Johnson’s Gillson Capital also made a $6.7 million investment in the stock during the quarter. The other funds with brand new FRC positions are Matthew Tewksbury’s Stevens Capital Management, OZ Management, and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as First Republic Bank (NYSE:FRC) but similarly valued. We will take a look at Maxim Integrated Products Inc. (NASDAQ:MXIM), SK Telecom Co., Ltd. (NYSE:SKM), Principal Financial Group Inc (NASDAQ:PFG), and STMicroelectronics N.V. (NYSE:STM). This group of stocks’ market valuations resemble FRC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MXIM | 28 | 254436 | 1 |
| SKM | 7 | 52977 | 1 |
| PFG | 17 | 113373 | 2 |
| STM | 13 | 111744 | -1 |
| Average | 16.25 | 133133 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $658 million in FRC’s case. Maxim Integrated Products Inc. (NASDAQ:MXIM) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 7 bullish hedge fund positions. First Republic Bank (NYSE:FRC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FRC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FRC were disappointed as the stock returned -0.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
