Were Hedge Funds Right About Piling Into Citizens Financial Group Inc (CFG)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Citizens Financial Group Inc (NYSE:CFG) and determine whether the smart money was really smart about this stock.

Is Citizens Financial Group Inc (NYSE:CFG) worth your attention right now? The smart money was becoming more confident. The number of bullish hedge fund positions rose by 4 recently. Our calculations also showed that CFG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the new hedge fund action encompassing Citizens Financial Group Inc (NYSE:CFG).

Hedge fund activity in Citizens Financial Group Inc (NYSE:CFG)

At Q1’s end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in CFG a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

The largest stake in Citizens Financial Group Inc (NYSE:CFG) was held by Citadel Investment Group, which reported holding $131.4 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $111.1 million position. Other investors bullish on the company included AQR Capital Management, Adage Capital Management, and Eminence Capital. In terms of the portfolio weights assigned to each position Castine Capital Management allocated the biggest weight to Citizens Financial Group Inc (NYSE:CFG), around 7.2% of its 13F portfolio. MSDC Management is also relatively very bullish on the stock, setting aside 3.59 percent of its 13F equity portfolio to CFG.

As aggregate interest increased, key money managers have been driving this bullishness. MSDC Management, managed by Marc Lisker, Glenn Fuhrman and John Phelan, assembled the most outsized position in Citizens Financial Group Inc (NYSE:CFG). MSDC Management had $13.3 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $3.6 million investment in the stock during the quarter. The following funds were also among the new CFG investors: Greg Eisner’s Engineers Gate Manager, Michael Gelband’s ExodusPoint Capital, and Phil Stone’s Fourthstone LLC.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Citizens Financial Group Inc (NYSE:CFG) but similarly valued. These stocks are Shaw Communications Inc (NYSE:SJR), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), Trimble Inc. (NASDAQ:TRMB), and ASE Technology Holding Co., Ltd. (NYSE:ASX). This group of stocks’ market values are similar to CFG’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $561 million. That figure was $828 million in CFG’s case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand ASE Technology Holding Co., Ltd. (NYSE:ASX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Citizens Financial Group Inc (NYSE:CFG) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CFG as the stock returned 36.6% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.