Lashing out with a series of downgrades for various regional banks, Raymond James has lowered its outlook for Zions Bancorporation (NASDAQ:ZION), Regions Financial Corp (NYSE:RF), and Bank Of The Ozarks Inc (NASDAQ:OZRK) to ‘Outperform’ from ‘Strong Buy’. Except for Regions Financial, the other two banks have outperformed the regional banking industry this year, which has gained 3.5% year-to-date. Zions Bancorporation (NASDAQ:ZION) has gained almost 10.5%, and Bank Of The Ozarks Inc (NASDAQ:OZRK) has delivered staggering returns of nearly 20%, while Regions Financial Corp (NYSE:RF)’s stock slid by 2.75%, all on a year-to-date basis, though Regions had also been performing strongly of late after a precipitous January decline. The latest downgrades conspired to shed between 1.34% and 1.74% off the share prices of the trio of companies.
The hedge fund interest, among those that we track, in these banking firms during the first quarter paints a slightly different picture, with Regions Financial currying the most enthusiasm from the smart money, as firms invested in the company increased to 42 with a total investment of $1.04 billion on March 31, compared to 37 funds with $862.25 million a quarter earlier. As for Bank Of The Ozarks Inc (NASDAQ:OZRK), a total of 13 funds had invested $80.27 million in the company at the end of March, compared with 12 firms with $61.89 million a quarter earlier. The investments increased despite a 1.7% fall in the stock price during the first three months. Hedge funds fled Zions Bancorporation (NASDAQ:ZION) on the other hand, as 30 of them had $572.44 million invested in the company at the end of March compared to 36 with $617.80 million at the end of last year.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 135% and beating the market by more than 80 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
Insider trading can give valuable insights into management’s perception of a company’s future prospects and that is why we keep a close eye on these moves. However, insider purchaing is a much stronger indicator than insider selling, which can occur for a much wider variety of reasons. Only in Regions Financial Corp (NYSE:RF) was an insider purchase detected this year, as David Turner, the company’s CFO, purchased 65,000 shares in January. On the other hand, David Blackford, Zions Bancorporation (NASDAQ:ZION)’s Executive Vice President sold 3,000 shares this year, while Catherine Freedberg, a Director at Bank Of The Ozarks Inc (NASDAQ:OZRK) sold about 8,100 shares in June.
What have hedge funds been doing with Zions Bancorporation (NASDAQ:ZION)?
According to hedge fund experts at Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the number one position in Zions Bancorporation (NASDAQ:ZION). Citadel Investment Group has a $176.8 million position in the stock, comprising 0.2% of its 13F portfolio. On Citadel Investment Group’s heels is Millennium Management, managed by Israel Englander, which held an $81 million position; 0.2% of its 13F portfolio is allocated to the company.
How are hedge funds trading Regions Financial Corporation (NYSE:RF)?
Richard S. Pzena’s Pzena Investment Management has the largest position in Regions Financial Corporation (NYSE:RF), worth close to $115.3 million, accounting for 0.6% of its total 13F portfolio. The second-largest stake is held by Samlyn Capital, managed by Robert Pohly, which holds a $106.2 million position; the fund has 1.7% of its 13F portfolio invested in the stock.
How are hedge funds trading Bank Of The Ozarks Inc (NASDAQ:OZRK)?
Drew Cupps‘ Cupps Capital Management has the most valuable position in Bank Of The Ozarks Inc (NASDAQ:OZRK), worth close to $13.6 million, amounting to 1.2% of its total 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which has a $10 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism consist of Jim Simons’ Renaissance Technologies, Sharif Siddiqui’s Alpenglow Capital, and Ken Gray and Steve Walsh’s Bryn Mawr Capital.
Given the combination of hedge fund activity, insider trading, and the downgrades, we would only put a ‘Buy’ recommendation on Regions Financial Corporation (NYSE:RF) out of this trio of companies.
Disclosure: None
