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Were Hedge Funds Right About Citigroup Inc. (C)?

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 (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Citigroup Inc. (NYSE:C) based on that data.

Citigroup Inc. (NYSE:C) was in 98 hedge funds’ portfolios at the end of the fourth quarter of 2019. C shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. 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 at the end of this article 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.

Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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 let’s check out the latest hedge fund action encompassing 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. By comparison, 90 hedge funds held shares or bullish call options in C a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

More specifically, ValueAct Capital was the largest shareholder of Citigroup Inc. (NYSE:C), with a stake worth $2159.1 million reported as of the end of September. Trailing ValueAct Capital was Eagle Capital Management, which amassed a stake valued at $2121.9 million. Greenhaven Associates, Diamond Hill Capital, and GQG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. 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, setting aside 21.23 percent of its 13F equity portfolio to C.

Judging by the fact that Citigroup Inc. (NYSE:C) has faced a decline in interest from the smart money, it’s easy to see that there exists a select few hedgies that elected to cut their full holdings by the end of the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $276.6 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $116.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Citigroup Inc. (NYSE:C) but similarly valued. 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 caps match C’s market cap.

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 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 lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately C wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on C were disappointed as the stock returned -44.5% during the three months of 2020 (through April 20th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
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.

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