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

We at Insider Monkey have gone over 821 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 March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Citigroup Inc. (NYSE:C) and determine whether the smart money was really smart about this stock.

Citigroup Inc. (NYSE:C) has seen a decrease in enthusiasm from smart money recently. C was in 86 hedge funds’ portfolios at the end of the first quarter of 2020. There were 98 hedge funds in our database with C holdings at the end of the previous quarter. Our calculations also showed that C 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Jeffrey Ubben of ValueAct Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to analyze the key hedge fund action encompassing Citigroup Inc. (NYSE:C).

Hedge fund activity in Citigroup Inc. (NYSE:C)

Heading into the second quarter of 2020, a total of 86 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. On the other hand, there were a total of 87 hedge funds with a bullish position in C a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, ValueAct Capital held the most valuable stake in Citigroup Inc. (NYSE:C), which was worth $1138.3 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $1109.6 million worth of shares. Diamond Hill Capital, D E Shaw, and Greenhaven Associates 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 16.35% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, earmarking 13.26 percent of its 13F equity portfolio to C.

Because Citigroup Inc. (NYSE:C) has experienced declining sentiment from the smart money, we can see that there is a sect of fund managers who were dropping their positions entirely heading into Q4. At the top of the heap, Rajiv Jain’s GQG Partners cut the biggest position of all the hedgies followed by Insider Monkey, valued at about $671.5 million in stock, and Robert Pitts’s Steadfast Capital Management was right behind this move, as the fund cut about $386.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 12 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Citigroup Inc. (NYSE:C). We will take a look at Royal Bank of Canada (NYSE:RY), Anheuser-Busch InBev SA/NV (NYSE:BUD), The Boeing Company (NYSE:BA), and BP plc (NYSE:BP). This group of stocks’ market valuations are similar to C’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RY 16 138801 -4
BUD 17 877182 -6
BA 54 877378 -28
BP 31 877653 -9
Average 29.5 692754 -11.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $693 million. That figure was $5494 million in C’s case. The Boeing Company (NYSE:BA) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 16 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 gained 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on C, though not to the same extent, as the stock returned 26.4% in Q2 (through June 25th) and outperformed the market as well.

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