Hedge Funds Are Betting On Citigroup Inc. (C)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Citigroup Inc. (NYSE:C) and determine whether hedge funds skillfully traded this stock.

Citigroup Inc. (NYSE:C) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that C ranked #23 among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Citigroup is behind JP Morgan Chase, but ahead of Bank of America and Wells Fargo in terms of hedge fund popularity.

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Jeffrey Ubben of ValueAct Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to review the new hedge fund action surrounding Citigroup Inc. (NYSE:C).

How have hedgies been trading Citigroup Inc. (NYSE:C)?

Heading into the third quarter of 2020, a total of 96 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. By comparison, 83 hedge funds held shares or bullish call options in C a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jeffrey Ubben’s ValueAct Capital has the largest position in Citigroup Inc. (NYSE:C), worth close to $1.381 billion, accounting for 15.8% of its total 13F portfolio. On ValueAct Capital’s heels is Eagle Capital Management, managed by Boykin Curry, which holds a $1.1493 billion position; 4.2% of its 13F portfolio is allocated to the stock. Other peers that hold long positions contain Ric Dillon’s Diamond Hill Capital, Richard S. Pzena’s Pzena Investment Management and Alex Snow’s Lansdowne Partners. In terms of the portfolio weights assigned to each position Tegean Capital Management allocated the biggest weight to Citigroup Inc. (NYSE:C), around 24.96% of its 13F portfolio. ValueAct Capital is also relatively very bullish on the stock, designating 15.81 percent of its 13F equity portfolio to C.

As one would reasonably expect, key money managers have been driving this bullishness. Lansdowne Partners, managed by Alex Snow, established the biggest position in Citigroup Inc. (NYSE:C). Lansdowne Partners had $290.7 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $54.8 million investment in the stock during the quarter. The other funds with brand new C positions are Kahn Brothers, Donald Sussman’s Paloma Partners, and George Soros’s Soros Fund Management.

Let’s check out hedge fund activity in other stocks similar to Citigroup Inc. (NYSE:C). We will take a look at Charter Communications, Inc. (NASDAQ:CHTR), Wells Fargo & Company (NYSE:WFC), BHP Group (NYSE:BBL), The Boeing Company (NYSE:BA), PetroChina Company Limited (NYSE:PTR), Pinduoduo Inc. (NASDAQ:PDD), and QUALCOMM, Incorporated (NASDAQ:QCOM). This group of stocks’ market valuations resemble C’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHTR 96 11227561 -8
WFC 86 10344809 10
BBL 22 919411 1
BA 39 1280437 -15
PTR 6 63660 -1
PDD 30 4149572 2
QCOM 74 2202796 14
Average 50.4 4312607 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.4 hedge funds with bullish positions and the average amount invested in these stocks was $4.3 billion. That figure was $6.2 billion in C’s case. Charter Communications, Inc. (NASDAQ:CHTR) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 6 bullish hedge fund positions. Citigroup Inc. (NYSE:C) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for C is 83.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on.

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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately C wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on C were disappointed as the stock returned 0.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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