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Were Hedge Funds Right Betting On These Stocks in Q4?

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In the third quarter of 2015 that – owing to the turmoil in the Chinese markets – equity markets across the world saw a large scale sell-off, which had a negative impact on the returns of US stocks for the whole 2015. Nevertheless, most smart money investors remained confident and decided to stick to most of their long positions, betting on their rebound and long-term growth. Since we at Insider Monkey constantly track the most prominent names in the hedge fund industry and the moves made by them, we also keep a tab on the stocks that are popular among those funds. During the third quarter of 2015 when stocks got beaten down, there were a few companies whose shares were being lapped up by hedge funds. In this article, we will take a look at the five stocks that ranked as the most popular among the funds we track and see their performance in the last quarter of 2015 as well as see what the near future might hold for them.

Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see the details here).

#5 Citigroup Inc (NYSE:C)

-Hedge Funds with Long Positions (as of September 30): 121

-Aggregate Value of Hedge Funds’ Holdings (as of September 30): $10.32 billion

Shares of Citigroup Inc (NYSE:C) got hit hard during the third-quarter sell-off and didn’t manage to recover throughout the end of 2015, losing nearly 5% during the last year. However, in the last three months of 2015, the stock gained around 6%, propelled by the Fed’s decision to raise interest rates. The beginning of 2016, though, saw Citigroup’s shares plunging by more than 20%, amid the company reporting its financial results for the last quarter and the full year 2015.

Citigroup posted EPS of $1.02 and revenue of $18.5 billion for the fourth quarter of 2015. Adjusted for CVA/DVA, the revenue amounted to $18.6 billion, while EPS stood at $1.06, which managed to beat the estimates of $17.87 billion and $1.05, respectively. For the full year, Citigroup delivered net income of $17.2 billion on revenue of  $76.4 billion.

Among the funds that didn’t make any changes to their stakes in the company during the third quarter was billionaire Dan Loeb‘s Third Point, which continued to own 20 million shares of Citigroup at the end of September.

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