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Hedge Funds Were Souring On Citigroup Inc. (C) Even Before Coronavirus

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details.). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Citigroup Inc. (NYSE:C).

Citigroup Inc. (NYSE:C) has seen a decrease in activity from the world’s largest hedge funds lately. C was in 98 hedge funds’ portfolios at the end of December. There were 101 hedge funds in our database with C positions at the end of the previous quarter. Our calculations also showed that C ranked 20th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

We leave no stone unturned when looking for the next great investment idea. For example this gold mining company is acquiring gold mines in Americas at a fraction of the cost of drilling them, so we look into its viability. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned nearly 50% despite the large losses in the market since our recommendation. Now we’re going to take a peek at the latest hedge fund action surrounding Citigroup Inc. (NYSE:C).

How are hedge funds trading Citigroup Inc. (NYSE:C)?

At Q4’s end, a total of 98 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in C over the last 18 quarters. So, let’s examine 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, Jeffrey Ubben’s ValueAct Capital has the biggest position in Citigroup Inc. (NYSE:C), worth close to $2.1591 billion, accounting for 21.9% of its total 13F portfolio. The second most bullish fund manager is Boykin Curry of Eagle Capital Management, with a $2.1219 billion position; 6.8% of its 13F portfolio is allocated to the stock. Other peers that hold long positions comprise Edgar Wachenheim’s Greenhaven Associates, Ric Dillon’s Diamond Hill Capital and Rajiv Jain’s GQG Partners. In terms of the portfolio weights assigned to each position ValueAct Capital allocated the biggest weight to Citigroup Inc. (NYSE:C), around 21.85% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, dishing out 21.23 percent of its 13F equity portfolio to C.

Due to the fact that Citigroup Inc. (NYSE:C) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers that slashed their full holdings in the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the largest position of all the hedgies watched by Insider Monkey, valued at close to $276.6 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $116.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Citigroup Inc. (NYSE:C). These stocks are China Mobile Limited (NYSE:CHL), Oracle Corporation (NYSE:ORCL), SAP SE (NYSE:SAP), and Anheuser-Busch InBev SA/NV (NYSE:BUD). This group of stocks’ market values are closest to C’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHL 12 386065 0
ORCL 59 3719807 3
SAP 16 1763846 -4
BUD 23 1478846 2
Average 27.5 1837141 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $1837 million. That figure was $11734 million in C’s case. Oracle Corporation (NYSE:ORCL) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Citigroup Inc. (NYSE:C) 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 also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately C wasn’t nearly as successful as these 20 stocks and hedge funds that were betting on C were disappointed as the stock returned -14.8% during the first two months of 2020 (through March 2nd) 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.

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