PNC Financial Services (NYSE:PNC) reported its financial results for the second quarter ending June 2015 this morning. The financial services company (as the name would imply) posted earnings per share of $1.88, 1.6% more than it did in the same quarter a year ago. Net revenues for the quarter increased to $3.9 billion from $3.8 billion during the same period in 2014. Net interest income has dropped by 4% year-over-year to $2.05 billion. Due to lower interest rates, the net interest margins also dropped, to 2.73% from 3.12% a year ago. However, the diversified financial services company managed to beat the street’s expectations for the fifth-straight quarter. Despite its strong performance in the last few quarters, the company managed to beat the consensus expectation of $1.76 in earnings per share and revenue expectations of $3.8 billion.
It appears hedge funds were expecting another earnings beat from PNC Financial Services (NYSE:PNC), as the smart money was slightly bullish on the company entering the second quarter of the year. At the end of first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in PNC Financial Services (NYSE:PNC) with a total investment of $1.31 billion, 5.6% more than the aggregate capital invested by 39 hedge funds at the end of 2014. Meanwhile, the stock gained a minuscule 1.3% during the January – March period. This stat indicates that the hedge funds preferred to pour more money into the stock during the first three months of the year, although overall ownership in terms of number of funds invested declined slightly.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. less than 55% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. In the case of PNC Financial Services (NYSE:PNC), there has been one insider purchase of shares, but on the contrary there were many insider sales of shares during the first half of this year. Director at PNC Financial Services (NYSE:PNC), Andrew Feldstein purchased around 22,000 shares in March. But, CEO William Demchak sold around 68,000 shares in April and Senior Vice Chairman Joseph Guyaux sold around 150,000 shares in March. There were a few other insider sales as well.
Keeping this in mind, let’s take a look at the fresh smart money action regarding PNC Financial Services (NYSE:PNC).
Hedge fund activity in PNC Financial Services (NYSE:PNC)
When looking at the hedgies followed by Insider Monkey, Pzena Investment Management, led by Richard S. Pzena, holds the largest position in PNC Financial Services (NYSE:PNC) as of the end of March. Pzena Investment Management holds around 3.4 million shares valued at $316.7 million, comprising 1.8% of its 13F portfolio. On Pzena Investment Management’s heels is Ric Dillon of Diamond Hill Capital with around 2.4 million shares valued at $188.7 million; 0.4% of its 13F portfolio is allocated to the company. Other hedgies that hold long positions include Cliff Asness’ Aqr Capital Management, Phill Gross and Robert Atchinson‘s Adage Capital Management, David Harding’s Winton Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.
Leading the bull race for PNC Financial Services (NYSE:PNC) is Pzena Investment Management as well, as they purchased an additional 400,000 shares of the company during the first three months of this year. Matthew Tewksbury’s Stevens Capital Management opened a fresh position in the stock by purchasing around 129,000 shares in the first trimester. But there were a few hedge funds bidding farewell to the stock during the same period. Mark Lee’s Forest Hill Capital sold the largest position in the stock by selling all of its 420,000 shares during the first quarter. Dmitry Balyasny’s Balyasny Asset Management also sold all of its 76,656 shares during the same period.
Overall, the hedge funds were marginally bullish on the stock during the first three months of 2015 and they were right to remain bullish as the company managed to beat the Street’s expectations for the fifth-straight quarter. Considering the bullish behavior of hedge funds and the company’s earnings beat, we recommend a buy on this stock.
Disclosure: None
