Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Regions Financial Corporation (NYSE:RF).
Regions Financial Corporation (NYSE:RF) has experienced an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that RF isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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.
Let’s go over the latest hedge fund action encompassing Regions Financial Corporation (NYSE:RF).
How have hedgies been trading Regions Financial Corporation (NYSE:RF)?
Heading into the first quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from the previous quarter. By comparison, 36 hedge funds held shares or bullish call options in RF a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Millennium Management held the most valuable stake in Regions Financial Corporation (NYSE:RF), which was worth $132.7 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $65.6 million worth of shares. Moreover, Sirios Capital Management, Basswood Capital, and Arrowstreet Capital were also bullish on Regions Financial Corporation (NYSE:RF), allocating a large percentage of their portfolios to this stock.
Now, specific money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, created the most outsized position in Regions Financial Corporation (NYSE:RF). Point72 Asset Management had $39.6 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also made a $25.8 million investment in the stock during the quarter. The following funds were also among the new RF investors: Clint Carlson’s Carlson Capital, Daniel Johnson’s Gillson Capital, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Regions Financial Corporation (NYSE:RF) but similarly valued. These stocks are WPP plc (NYSE:WPP), Citrix Systems, Inc. (NASDAQ:CTXS), Ryanair Holdings plc (NASDAQ:RYAAY), and KLA-Tencor Corporation (NASDAQ:KLAC). This group of stocks’ market valuations resemble RF’s market valuation.
|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 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $783 million. That figure was $675 million in RF’s case. Citrix Systems, Inc. (NASDAQ:CTXS) is the most popular stock in this table. On the other hand Ryanair Holdings plc (NASDAQ:RYAAY) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Regions Financial Corporation (NYSE:RF) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on RF, though not to the same extent, as the stock returned 18.7% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.