How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Regions Financial Corporation (NYSE:RF) and determine whether hedge funds had an edge regarding this stock.
Is Regions Financial Corporation (NYSE:RF) ready to rally soon? Prominent investors were in a bearish mood. The number of bullish hedge fund positions dropped by 11 recently. Regions Financial Corporation (NYSE:RF) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistics is 47. Our calculations also showed that RF isn’t 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most investors, hedge funds are perceived as underperforming, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation today, Our experts choose to focus on the bigwigs of this club, around 850 funds. It is estimated that this group of investors have their hands on the lion’s share of the hedge fund industry’s total capital, and by paying attention to their first-class equity investments, Insider Monkey has found numerous investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to analyze the key hedge fund action encompassing Regions Financial Corporation (NYSE:RF).
How have hedgies been trading Regions Financial Corporation (NYSE:RF)?
Heading into the third quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from the first quarter of 2020. On the other hand, there were a total of 32 hedge funds with a bullish position in RF a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Pzena Investment Management held the most valuable stake in Regions Financial Corporation (NYSE:RF), which was worth $63.2 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $58 million worth of shares. Arrowstreet Capital, Interval Partners, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Elizabeth Park Capital Management allocated the biggest weight to Regions Financial Corporation (NYSE:RF), around 3.46% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, earmarking 2.47 percent of its 13F equity portfolio to RF.
Because Regions Financial Corporation (NYSE:RF) has experienced a decline in interest from hedge fund managers, it’s safe to say that there were a few fund managers that decided to sell off their full holdings heading into Q3. Intriguingly, Steve Cohen’s Point72 Asset Management dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $19.2 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $14.9 million worth. These transactions are interesting, as total hedge fund interest fell by 11 funds heading into Q3.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Regions Financial Corporation (NYSE:RF) but similarly valued. We will take a look at Credicorp Ltd. (NYSE:BAP), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), Monolithic Power Systems, Inc. (NASDAQ:MPWR), argenx SE (NASDAQ:ARGX), Molina Healthcare, Inc. (NYSE:MOH), Royal Caribbean Cruises Ltd. (NYSE:RCL), and Avalara, Inc. (NYSE:AVLR). This group of stocks’ market values are closest to RF’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.7 hedge funds with bullish positions and the average amount invested in these stocks was $782 million. That figure was $192 million in RF’s case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Credicorp Ltd. (NYSE:BAP) is the least popular one with only 20 bullish hedge fund positions. Regions Financial Corporation (NYSE:RF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RF is 28.2. 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 negative signal and 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately RF wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RF investors were disappointed as the stock returned 0.2% since Q2 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.