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Hedge Funds Have Never Been This Bullish On Fifth Third Bancorp (FITB)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Fifth Third Bancorp (NASDAQ:FITB) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is Fifth Third Bancorp (NASDAQ:FITB) worth your attention right now? Prominent investors are getting more bullish. The number of bullish hedge fund bets increased by 7 in recent months. Our calculations also showed that FITB isn’t among the 30 most popular stocks among hedge funds. FITB was in 38 hedge funds’ portfolios at the end of the first quarter of 2019. There were 31 hedge funds in our database with FITB positions at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Richard Pzena - Pzena Investment Management

We’re going to take a look at the recent hedge fund action encompassing Fifth Third Bancorp (NASDAQ:FITB).

How have hedgies been trading Fifth Third Bancorp (NASDAQ:FITB)?

Heading into the second quarter of 2019, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards FITB over the last 15 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

FITB_jun2019

According to Insider Monkey’s hedge fund database, Ken Griffin’s Citadel Investment Group has the largest position in Fifth Third Bancorp (NASDAQ:FITB), worth close to $354 million, corresponding to 0.2% of its total 13F portfolio. On Citadel Investment Group’s heels is Balyasny Asset Management, managed by Dmitry Balyasny, which holds a $125.6 million position; 0.8% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism comprise Israel Englander’s Millennium Management, Richard S. Pzena’s Pzena Investment Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Now, some big names have been driving this bullishness. Carlson Capital, managed by Clint Carlson, established the biggest position in Fifth Third Bancorp (NASDAQ:FITB). Carlson Capital had $27.8 million invested in the company at the end of the quarter. Daniel Johnson’s Gillson Capital also made a $15.1 million investment in the stock during the quarter. The following funds were also among the new FITB investors: Steve Cohen’s Point72 Asset Management, Sander Gerber’s Hudson Bay Capital Management, and David Rodriguez-Fraile’s BlueMar Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fifth Third Bancorp (NASDAQ:FITB) but similarly valued. We will take a look at Ball Corporation (NYSE:BLL), Sasol Limited (NYSE:SSL), IDEXX Laboratories, Inc. (NASDAQ:IDXX), and Credicorp Ltd. (NYSE:BAP). This group of stocks’ market valuations are similar to FITB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BLL 27 324081 -6
SSL 5 18378 -2
IDXX 29 695512 -4
BAP 20 762470 6
Average 20.25 450110 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $450 million. That figure was $1121 million in FITB’s case. IDEXX Laboratories, Inc. (NASDAQ:IDXX) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Fifth Third Bancorp (NASDAQ:FITB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on FITB as the stock returned 6.6% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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