We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Citizens Financial Group Inc (NYSE:CFG) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Citizens Financial Group Inc (NYSE:CFG) a buy right now? Money managers are becoming less confident. The number of bullish hedge fund bets fell by 1 recently. Our calculations also showed that CFG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 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 S&P 500 ETFs by 41 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 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.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the recent hedge fund action surrounding Citizens Financial Group Inc (NYSE:CFG).
What does smart money think about Citizens Financial Group Inc (NYSE:CFG)?
At Q4’s end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from one quarter earlier. By comparison, 43 hedge funds held shares or bullish call options in CFG a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the most valuable position in Citizens Financial Group Inc (NYSE:CFG), worth close to $304.4 million, amounting to 0.7% of its total 13F portfolio. On Arrowstreet Capital’s heels is Ken Griffin of Citadel Investment Group, with a $285.7 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions comprise Cliff Asness’s AQR Capital Management, Ricky Sandler’s Eminence Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Elizabeth Park Capital Management allocated the biggest weight to Citizens Financial Group Inc (NYSE:CFG), around 5.37% of its 13F portfolio. Castine Capital Management is also relatively very bullish on the stock, designating 5.17 percent of its 13F equity portfolio to CFG.
Since Citizens Financial Group Inc (NYSE:CFG) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there exists a select few money managers that decided to sell off their positions entirely in the third quarter. At the top of the heap, Clint Carlson’s Carlson Capital dumped the biggest position of all the hedgies followed by Insider Monkey, totaling an estimated $17.7 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also said goodbye to its stock, about $12.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Citizens Financial Group Inc (NYSE:CFG) but similarly valued. These stocks are Omnicom Group Inc. (NYSE:OMC), Concho Resources Inc. (NYSE:CXO), Amcor plc (NYSE:AMCR), and Nasdaq, Inc. (NASDAQ:NDAQ). This group of stocks’ market caps are closest to CFG’s market cap.
|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 24 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $1814 million in CFG’s case. Concho Resources Inc. (NYSE:CXO) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Citizens Financial Group Inc (NYSE:CFG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately CFG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CFG were disappointed as the stock returned -53.9% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.