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Did Hedge Funds Make The Right Call On Truist Financial Corporation (TFC) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Truist Financial Corporation (NYSE:TFC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Truist Financial Corporation (NYSE:TFC) investors should be aware of a decrease in enthusiasm from smart money recently. TFC was in 34 hedge funds’ portfolios at the end of the first quarter of 2020. There were 35 hedge funds in our database with TFC holdings at the end of the previous quarter. Our calculations also showed that TFC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the fresh hedge fund action encompassing Truist Financial Corporation (NYSE:TFC).

How have hedgies been trading Truist Financial Corporation (NYSE:TFC)?

At Q1’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TFC over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the largest position in Truist Financial Corporation (NYSE:TFC), worth close to $243.7 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Carlson Capital, managed by Clint Carlson, which holds a $68.8 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions contain Phill Gross and Robert Atchinson’s Adage Capital Management, Dmitry Balyasny’s Balyasny Asset Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Prana Capital Management allocated the biggest weight to Truist Financial Corporation (NYSE:TFC), around 4.03% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, designating 3.48 percent of its 13F equity portfolio to TFC.

Seeing as Truist Financial Corporation (NYSE:TFC) has witnessed declining sentiment from hedge fund managers, logic holds that there were a few fund managers who were dropping their positions entirely last quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners dropped the largest stake of the 750 funds followed by Insider Monkey, totaling an estimated $22.9 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund sold off about $8.9 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Truist Financial Corporation (NYSE:TFC) but similarly valued. We will take a look at Relx PLC (NYSE:RELX), Baxter International Inc. (NYSE:BAX), The PNC Financial Services Group, Inc. (NYSE:PNC), and NetEase, Inc (NASDAQ:NTES). This group of stocks’ market values are similar to TFC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RELX 5 97388 -2
BAX 50 3209249 3
PNC 40 1263969 -2
NTES 39 3286243 -5
Average 33.5 1964212 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1964 million. That figure was $551 million in TFC’s case. Baxter International Inc. (NYSE:BAX) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 5 bullish hedge fund positions. Truist Financial Corporation (NYSE:TFC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on TFC, though not to the same extent, as the stock returned 23.5% during the second quarter and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.