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How Are US Hedge Funds Positioned in UK Financial Stocks

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While equities from around the world got hammered after Brexit became a reality last week, UK stocks were the ones that have suffered the most damage. The FTSE 100 Index plunged following the results and some of the prominent financial service companies based in the UK have seen a significant erosion in their market cap during that time, although they recovered in the days following the referendum as lawmakers discuss the next steps. In this post, we will be taking a look at some of the leading UK financial stocks that have been beaten down aggressively and will be discussing how the over 750 smart money investors covered by us were positioned in those stocks.

Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

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#5 Royal Bank of Scotland Group PLC (NYSE:RBS)

– Investors with long positions (as of March 31): 10

– Aggregate value of investors’ holdings (as of March 31): $32.87 million

Let’s start with Royal Bank of Scotland Group PLC (NYSE:RBS), which saw no change in its ownership among hedge funds covered by us during the first quarter, but the aggregate value of their holdings in the company nearly doubled during that period. Though shares of the banking and financial services company have been on a downtrend from the start of 2015, they have tumbled more than 30% since the Brexit result came out and are currently trading down by 48% year-to-date. On June 27, analysts from seven prominent Wall Street firms downgraded the stock, including analysts at RBC Capital who downgraded it to ‘Underperform’ from ‘Outperform’. Following the referendum, the UK government scrapped its plans of selling its stake in Royal Bank of Scotland Group PLC (NYSE:RBS) and Lloyds Banking Group (NYSE:LYG) due to economic uncertainty and turmoil in the market in the wake of the Brexit vote.

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#4 OM Asset Management PLC (NYSE:OMAM)

– Investors with long positions (as of March 31): 11

– Aggregate value of investors’ holdings (as of March 31): $61.38 million

Though the number of funds tracked by us long OM Asset Management PLC (NYSE:OMAM) increased by three during the first quarter, the aggregate value of their holdings in the company came down by $25.48 million. The Brexit decision has wiped out over 11% of the market capitalization of the multi-boutique asset management company in the last few days and its stock currently trades down 14% year-to-date. OM Asset Management PLC (NYSE:OMAM) currently pays a quarterly dividend of $0.08 per share, which based on its last trading price translates into a respectable annual dividend yield of 2.43%. On June 15, analysts at Citigroup reiterated their ‘Buy’ rating on the stock, while upping their price target on it to $20 from $18, which represents a potential upside of 55.27% from the levels the stock is currently trading at.

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