The Smart Money is Pouring into These Financial Stocks: Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), Bank of America Corp (BAC)

Page 1 of 2

Though estimates vary, it is widely accepted that no more than 400 to 500 managers control about four-fifths of the hedge fund world’s total asset base. Considering the fact that there were a little over 8,000 active hedgies at the end of last year, this paints an astonishing picture of the sheer concentration that has occurred in this industry.

This is an important point to consider, because at Insider Monkey, we’ve discovered how to capitalize on this phenomenon. By focusing on the best picks of this upper tier, we’ve developed several ways that have helped retail investors immensely. Our small-cap strategy outpaced the broader indexes by 18% a year for more than a decade in our back tests, and since we started sharing these picks with the public, we’ve beaten the market by 18 percentage points in only 5 months (see how to capitalize on this strategy yourself).

A look at the latest round of 13F filings with the SEC indicates an intriguing trend is occurring in this space: a shift toward deeply discounted financial stocks. In fact, of the smart money’s five favorite companies in this sector, four saw an inflow of money last quarter. Let’s take a look.

At the No. 1 spot, American International Group, Inc. (NYSE:AIG) is no surprise. We originally reported over a week ago that AIG had displaced Apple as hedgies’ favorite stock heading into 2013. At the end of the fourth quarter, 142 of the funds we track held long positions in the insurer, an increase of 17% from the previous quarter. Of this group, Bruce Berkowitz’s $3 billion position is by far the largest, accounting for more than 40% of his total equity portfolio. Dan Loeb (see Loeb and Third Point’s profile) and Brian Jackelow are two of the 15 other managers with over 10% of their holdings allocated to AIG.

Citigroup Inc (NYSE:C)

Citigroup Inc. (NYSE:C), meanwhile, takes the No. 2 spot on this list with 108 hedge funds invested. Citi’s focus on emerging market-activity is a key reason why the smart money is bullish. Over the next half-decade, analysts forecast its EPS growth to outpace all but two of its peers in the money center banking industry. Of the funds we track, David Tepper and George Soros (see Soros’s full portfolio) hold two of the top three largest positions in Citigroup.

With 93 hedge funds reporting long positions, JPMorgan Chase & Co. (NYSE:JPM) is the third most popular financial stock. Three notable managers—Julian Robertson, Whitney Tilson and Mike Vranos—sold out of JPM last quarter, though “magic formula” man Joel Greenblatt and Rob Citrone were a few of the many who established positions (see the full list here). Like Citigroup and AIG, JPMorgan trades at a discount to its book value per share—about 9% in this case.

Bank of America Corp (NYSE:BAC) sits in a tie with JPM with 93 hedgies invested at the end of last quarter. In terms of capital inflows, Bank of America actually saw the second highest of this group behind AIG, and fifth in our entire equity universe.

That’s quite a statistic, but what does it actually mean?

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

The 10 Most Dangerous States to be a Cop

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!