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 Regions Financial Corporation (NYSE:RF) 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 Regions Financial Corporation (NYSE:RF) worth your attention right now? Hedge funds are taking an optimistic view. The number of bullish hedge fund positions improved by 10 lately. Our calculations also showed that RF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
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. Keeping this in mind we’re going to check out the key hedge fund action surrounding Regions Financial Corporation (NYSE:RF).
What have hedge funds been doing with Regions Financial Corporation (NYSE:RF)?
At Q4’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 37% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards RF over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Regions Financial Corporation (NYSE:RF) was held by Two Sigma Advisors, which reported holding $112.1 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $94.3 million position. Other investors bullish on the company included Millennium Management, Arrowstreet Capital, and EJF Capital. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to Regions Financial Corporation (NYSE:RF), around 4.39% of its 13F portfolio. Elizabeth Park Capital Management is also relatively very bullish on the stock, setting aside 3.68 percent of its 13F equity portfolio to RF.
As industrywide interest jumped, some big names have been driving this bullishness. EJF Capital, managed by Emanuel J. Friedman, initiated the biggest position in Regions Financial Corporation (NYSE:RF). EJF Capital had $43.8 million invested in the company at the end of the quarter. Fred Cummings’s Elizabeth Park Capital Management also initiated a $9.4 million position during the quarter. The following funds were also among the new RF investors: David Harding’s Winton Capital Management, Matthew Tewksbury’s Stevens Capital Management, and Ray Dalio’s Bridgewater Associates.
Let’s now review hedge fund activity in other stocks similar to Regions Financial Corporation (NYSE:RF). These stocks are Enel Americas S.A. (NYSE:ENIA), Laboratory Corp. of America Holdings (NYSE:LH), POSCO (NYSE:PKX), and Nomura Holdings, Inc. (NYSE:NMR). All of these stocks’ market caps resemble RF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENIA | 8 | 217190 | 0 |
| LH | 53 | 1291810 | 10 |
| PKX | 10 | 64171 | -1 |
| NMR | 5 | 26003 | 0 |
| Average | 19 | 399794 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $400 million. That figure was $468 million in RF’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. Regions Financial Corporation (NYSE:RF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 but beat the market by 3.2 percentage points. Unfortunately RF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RF were disappointed as the stock returned -51.1% during the same time period 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
