Were Hedge Funds Right About Piling Into Fifth Third Bancorp (FITB)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Fifth Third Bancorp (NASDAQ:FITB).

Is Fifth Third Bancorp (NASDAQ:FITB) ready to rally soon? The best stock pickers were becoming hopeful. The number of long hedge fund positions rose by 13 recently. Fifth Third Bancorp (NASDAQ:FITB) was in 43 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FITB isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to analyze the new hedge fund action surrounding Fifth Third Bancorp (NASDAQ:FITB).

Do Hedge Funds Think FITB Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in FITB over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is FITB A Good Stock To Buy?

Among these funds, Citadel Investment Group held the most valuable stake in Fifth Third Bancorp (NASDAQ:FITB), which was worth $151.5 million at the end of the fourth quarter. On the second spot was Pzena Investment Management which amassed $56.2 million worth of shares. Adage Capital Management, Millennium Management, and Holocene Advisors 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 Elizabeth Park Capital Management allocated the biggest weight to Fifth Third Bancorp (NASDAQ:FITB), around 3.22% of its 13F portfolio. Hourglass Capital is also relatively very bullish on the stock, designating 2.93 percent of its 13F equity portfolio to FITB.

Consequently, key hedge funds were breaking ground themselves. Renaissance Technologies, created the most valuable position in Fifth Third Bancorp (NASDAQ:FITB). Renaissance Technologies had $15.6 million invested in the company at the end of the quarter. William Harnisch’s Peconic Partners LLC also made a $6.9 million investment in the stock during the quarter. The other funds with brand new FITB positions are Ray Dalio’s Bridgewater Associates, Michael Gelband’s ExodusPoint Capital, and Ken Grossman and Glen Schneider’s SG Capital Management.

Let’s go over hedge fund activity in other stocks similar to Fifth Third Bancorp (NASDAQ:FITB). These stocks are BioNTech SE (NASDAQ:BNTX), International Paper Company (NYSE:IP), Northern Trust Corporation (NASDAQ:NTRS), Warner Music Group Corp. (NASDAQ:WMG), Ameren Corporation (NYSE:AEE), Rollins, Inc. (NYSE:ROL), and Teleflex Incorporated (NYSE:TFX). This group of stocks’ market values match FITB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BNTX 17 170450 0
IP 31 167610 -1
NTRS 31 388257 3
WMG 29 1021052 9
AEE 19 313397 -1
ROL 28 644651 -1
TFX 30 790658 -10
Average 26.4 499439 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $499 million. That figure was $506 million in FITB’s case. International Paper Company (NYSE:IP) is the most popular stock in this table. On the other hand BioNTech SE (NASDAQ:BNTX) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Fifth Third Bancorp (NASDAQ:FITB) is more popular among hedge funds. Our overall hedge fund sentiment score for FITB is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on FITB as the stock returned 48.1% since the end of December (through 4/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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