It’s no secret that rich investors like to invest in financial stocks. Most billionaires out of those that we track as part of our small-cap strategy have at least one financial company among their stock picks. Even though most banks and insurance stocks tanked during the financial crisis of 2008-2009, this didn’t scare investors away, due to the high profitability of these companies, which also have some of the highest profit margins across sectors. Warren Buffett holds around 46% of Berkshire’s equity portfolio tied in financial stocks, while his top five holdings include large stakes in Wells Fargo & Co (NYSE:WFC) and American Express Company (NYSE:AXP). Moreover Berkshire Hathaway has 100% ownership in five large insurance and finance companies, including GEICO and General Re. In an interview earlier this year, Buffett said that he likes the banking system in the current environment. Billionaire Leon Cooperman also owns stakes in several big bangs among his largest positions and last year said that the financial sector is one of the most lucrative for investors to find value. With this in mind, we have compiled a list of three stocks, which ranked as the most popular among 60 billionaires from our list according to the latest round of 13F filings.
We are interested in the activity of billionaire investors due to their great stock picking skills. Even though they invest mostly in large- and mega-cap stocks with prospects for a long-term gain, smaller investors can still benefit from their investment acumen. The focus is to imitate their small-cap picks, because we determined that these stocks can beat the market by nearly one percentage point per month and deliver a double-digit annual alpha. Since we launched our strategy in August 2012, we managed to obtain returns north of 130%, beating the S&P 500 ETF (SPY) by around 80 percentage points in the last 2.5 years (read more details here).
Citigroup Inc (NYSE:C) stands on the first spot as the most popular financial pick among billionaires. With 18 billionaires disclosing ownership of more than $2.98 billion worth of stock, Citigroup also ranks as the second-most popular stock among billionaires and since 126 funds among those we track disclosed holding long positions with an aggregate value of $11.63 billion, it also ranked as the fourth-most popular stock among hedge funds. It’s no surprise that billionaires and smaller investors like Citigroup Inc (NYSE:C) the most among all banks. It earned the highest score at the latest stress test conducted by the Fed, which is a significant improvement after it failed the same test last year. As a result, Citigroup Inc (NYSE:C) boosted its dividend to $0.05 from $0.01 and got approval to increase its buyback program, which now totals $7.8 billion. Among the funds we track, billionaire Ken Fisher‘s Fisher Asset Management holds 11.69 million shares of Citigroup valued at $602.35 million as of the end of March. Billionaires Andreas Halvorsen and Ken Griffin also disclosed substantial stakes in their latest 13F filings.
In American International Group Inc (NYSE:AIG), a total of 13 billionaires held long positions with an aggregate value of $2.91 billion, which makes it the most popular insurance stock among billionaires. During the first three months of 2015, American International Group saw two billionaires initiating significant positions: Andreas Halvorsen and John Paulson. In their latest 13F filings, Paulson’s Paulson & Co. and Halvorsen’s Viking Global disclosed ownership of 14.60 million shares and 8.44 million shares, respectively, valued at $800.11 million and $462.54 million. Meanwhile, American International Group Inc (NYSE:AIG)’s stock declined by almost 2% during the first quarter and has slightly rebounded and currently is trading 5% in green year-to-date. As a large insurance company, AIG took a big hit during the financial crisis, but has since recovered and continues to improve its financial situation with share buybacks and the reduction of its debt. In March 2014, billionaire Leon Cooperman said that American International Group Inc (NYSE:AIG) was trading at 80% of its book value and forecasted a return of around 25% for the following 12-18 months. The stock has gained 17% since Cooperman’s words, but AIG also has been on a path to further increase its book value, which amounted to $60.69 at the end of the first quarter, up by 14% on the year.
JPMorgan Chase & Co. (NYSE:JPM) also made the list as the number of billionaires holding the stock went up to 12 from 10 during the first three months of 2015. The value of capital piled into the company also increased to $1.51 billion from $12.44 billion. One of the billionaire investors that significantly raised his exposure to JPMorgan Chase & Co. (NYSE:JPM) is Ken Griffin of Citadel Investment Group, which disclosed holding 2.38 million shares valued at $144.35 million, up by 143% on the quarter. JPMorgan Chase also passed the stress test, although it had to alter plans under which it intended to pay out capital to shareholders. Fisher Asset Management is also one of the top shareholders of JPMorgan Chase & Co. (NYSE:JPM) among the funds we track, holding 13.58 million shares.
All in all, despite a large number of billionaires holding shares of these three companies, the aggregate value of their stakes represents small shares of their market caps, which suggests that billionaires in their majority are underweight these stocks.
Disclosure: none
