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

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Fifth Third Bancorp (NASDAQ:FITB).

Fifth Third Bancorp (NASDAQ:FITB) has experienced an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that FITB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the latest hedge fund action regarding Fifth Third Bancorp (NASDAQ:FITB).

How are hedge funds trading Fifth Third Bancorp (NASDAQ:FITB)?

Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in FITB a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

No of Hedge Funds with FITB Positions

The largest stake in Fifth Third Bancorp (NASDAQ:FITB) was held by Millennium Management, which reported holding $160.8 million worth of stock at the end of September. It was followed by AQR Capital Management with a $139.5 million position. Other investors bullish on the company included Citadel Investment Group, Pzena Investment Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position BlueMar Capital Management allocated the biggest weight to Fifth Third Bancorp (NASDAQ:FITB), around 1.97% of its portfolio. Carlson Capital is also relatively very bullish on the stock, designating 1.94 percent of its 13F equity portfolio to FITB.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Laurion Capital Management, managed by Benjamin A. Smith, assembled the most outsized position in Fifth Third Bancorp (NASDAQ:FITB). Laurion Capital Management had $10.5 million invested in the company at the end of the quarter. Perella Weinberg Partners also initiated a $3.3 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Ray Dalio’s Bridgewater Associates, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Fifth Third Bancorp (NASDAQ:FITB) but similarly valued. These stocks are Fox Corporation (NASDAQ:FOX), Fox Corporation (NASDAQ:FOXA), Rogers Communications Inc. (NYSE:RCI), and D.R. Horton, Inc. (NYSE:DHI). This group of stocks’ market caps resemble FITB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FOX 27 849332 -3
FOXA 48 2457821 -12
RCI 21 440152 7
DHI 53 2555525 6
Average 37.25 1575708 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.25 hedge funds with bullish positions and the average amount invested in these stocks was $1576 million. That figure was $1028 million in FITB’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 21 bullish hedge fund positions. Fifth Third Bancorp (NASDAQ:FITB) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on FITB, though not to the same extent, as the stock returned 10.3% during the first two months of the fourth quarter and outperformed the market.

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

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