Should You Avoid The PNC Financial Services Group Inc. (PNC)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of The PNC Financial Services Group Inc. (NYSE:PNC) based on that data.

The PNC Financial Services Group Inc. (NYSE:PNC) investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. PNC was in 40 hedge funds’ portfolios at the end of March. There were 42 hedge funds in our database with PNC positions at the end of the previous quarter. Our calculations also showed that PNC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 51 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.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the key hedge fund action encompassing The PNC Financial Services Group Inc. (NYSE:PNC).

How are hedge funds trading The PNC Financial Services Group Inc. (NYSE:PNC)?

At Q1’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in PNC over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in The PNC Financial Services Group Inc. (NYSE:PNC) was held by Berkshire Hathaway, which reported holding $880.4 million worth of stock at the end of September. It was followed by AQR Capital Management with a $114.7 million position. Other investors bullish on the company included Arrowstreet Capital, Adage Capital Management, and GAMCO Investors. In terms of the portfolio weights assigned to each position Gillson Capital allocated the biggest weight to The PNC Financial Services Group Inc. (NYSE:PNC), around 3.8% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, setting aside 2.48 percent of its 13F equity portfolio to PNC.

Due to the fact that The PNC Financial Services Group Inc. (NYSE:PNC) has faced a decline in interest from the smart money, it’s easy to see that there was a specific group of money managers that slashed their full holdings last quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $126.3 million in stock, and Stanley Druckenmiller’s Duquesne Capital was right behind this move, as the fund sold off about $47.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to The PNC Financial Services Group Inc. (NYSE:PNC). We will take a look at NetEase, Inc (NASDAQ:NTES), National Grid plc (NYSE:NGG), Zoom Video Communications, Inc. (NASDAQ:ZM), and Walgreens Boots Alliance Inc (NASDAQ:WBA). This group of stocks’ market caps are similar to PNC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTES 39 3286243 -5
NGG 6 435493 0
ZM 47 2383850 19
WBA 45 461497 7
Average 34.25 1641771 5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1642 million. That figure was $1264 million in PNC’s case. Zoom Video Communications, Inc. (NASDAQ:ZM) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 6 bullish hedge fund positions. The PNC Financial Services Group Inc. (NYSE:PNC) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on PNC, though not to the same extent, as the stock returned 20.5% during the first two months of the second quarter and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.