On Monday, Barclays PLC (ADR) (NYSE:BCS) released its Americas Top Picks List, in which it revealed stocks that it believes can significantly outperform the market. The financial services company has an “Overweight” rating on most of these stocks and they represent the leaders of their respective sectors. In this article, we will take a closer look at three financial stocks from Barclays’ list and see the hedge fund sentiment surrounding each one of them to find out if large investors share the same opinion. The companies that we will focus on are: Citigroup Inc (NYSE:C), Manulife Financial Corporation (USA) (NYSE:MFC) and MGIC Investment Corp. (NYSE:MTG).
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 84 percentage points since the end of August 2012 when this system went live, returning a cumulative 135.5% vs. 55% for the S&P 500 ETF (SPY) (read more details here). 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.
Citigroup Inc (NYSE:C) stock has jumped around 7% in the last three months. In May, Barclays reiterated its ‘Overweight’ rating on Citigroup, and raised the price target to $65. Barclays’ expects that Citigroup will be benefiting in 2015 from multiple factors like correcting qualitative issues identified in 2014 CCAR, increased focus on core business following the exits of non-core retail markets and businesses, continuous emerging market growth outpacing developed market growth. Moreover, Citigroup will benefit from a $48 billion deferred tax utilization, reduction in Citi Holdings, which contains its non-core businesses and portfolios, and 2015 profitability goals progress.
What do hedge funds think about Citigroup Inc (NYSE:C)? Many hedge funds opted to walk out of this stock by the end of first quarter, as the number of hedge funds holding long positions in the stock reduced to 126 at the end of the first trimester from 137 a quarter earlier. Even though the number of hedge fund position had dropped, the aggregate value of the capital invested by these hedge funds increased by 3% on the quarter to $11.63 billion. Among the hedge funds tracked by Insider Monkey, Boykin Curry‘s Eagle Capital Management holds the largest position in the stock with 26.3 million shares valued at $1.35 billion. On the contrary, Dan Loeb‘s Third Point sold all of its 5.0 million shares during the January-March period.
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Barclays also believes that Manulife Financial Corporation (USA) (NYSE:MFC) has the greatest leverage in the strengthening global economy, although it is very sensitive to rising interest rates. In this way, Manulife is capable of going past the headwinds due to low interest rates at the moment and can gain more ground even before the interest rates start rising again. They pointed at double digit growth in Asia operations as the key asset for Manulife’s growth. Barclays has set a price target of $26 on Manulife Financial Corporation (USA) (NYSE:MFC), with ‘Overweight’ rating.
On the other hand, “hedgies” were not too positive on this stock as the stock saw an outflow of capital in the first three months of the year. There were 12 hedge funds holding $167.2 million worth of stock at the end of first trimester, versus 15 hedge funds with $228.9 million a quarter earlier. In addition, the stock lost 11% during the January – March period. Even Daniel Bubis‘ Tetrem Capital Management with largest position in Manulife Financial Corporation (USA) (NYSE:MFC), sold around 900,000 shares in the first three months, holding 7 million shares valued at $150.7 million at the end of March. Notably, Jim Simons‘ Renaissance Technologies closed its stake of 400,000 shares during the first quarter. Overall, hedge funds are not bullish on Manulife Financial, but Barclays believes that the company has a huge upside potential.
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Barclays PLC (ADR) (NYSE:BCS) has also picked MGIC Investment Corp. (NYSE:MTG) as one of its top financial picks. MGIC Investment Corp. (NYSE:MTG) is having a great 2015, so far, with the stock gaining 22.5%. Barclays has an ‘Overweight’ rating on the stock with a price target of $14 and it believes that the Street is underestimating the earnings growth of the company.
But how did hedge funds trade this stock? As of the end of March, there were 54 hedge funds holding long positions with a total investment of $1.78 billion, down from 57 hedge funds with $1.77 billion at the end of the previous quarter. Many funds hold convertible bonds underlying shares of the company, but the largest position is held by John Griffin’s Blue Ridge Capital, which disclosed 14.90 shares in its latest 13F. In addition, Stephen Mandel‘s Lone Pipe Capital initiated a stake with 12.40 million shares, while John Khoury’s Long Pond Capital disposed of 3.8 million shares and closed its stake during the first quarter.
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Disclosure: None
