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Should You Avoid Citizens Financial Group Inc (CFG)?

Abigail Fisher

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Citizens Financial Group Inc (NYSE:CFG) in this article.

Citizens Financial Group Inc (NYSE:CFG) investors should be aware of a decrease in activity from the world's largest hedge funds lately. Our calculations also showed that CFG isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

CFG_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to analyze the latest hedge fund action encompassing Citizens Financial Group Inc (NYSE:CFG).

How are hedge funds trading Citizens Financial Group Inc (NYSE:CFG)?

At the end of the second quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CFG over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Ricky Sandler, Eminence Capital

The largest stake in Citizens Financial Group Inc (NYSE:CFG) was held by Citadel Investment Group, which reported holding $190.6 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $183.9 million position. Other investors bullish on the company included Eminence Capital, D E Shaw, and Two Sigma Advisors.

Judging by the fact that Citizens Financial Group Inc (NYSE:CFG) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few money managers that slashed their entire stakes heading into Q3. At the top of the heap, Andrew Feldstein and Stephen Siderow's Blue Mountain Capital cut the largest investment of the 750 funds tracked by Insider Monkey, valued at about $6.8 million in stock. David Harding's fund, Winton Capital Management, also dumped its stock, about $5.7 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let's also examine hedge fund activity in other stocks similar to Citizens Financial Group Inc (NYSE:CFG). These stocks are Franco-Nevada Corporation (NYSE:FNV), Marvell Technology Group Ltd. (NASDAQ:MRVL), WPP plc (NYSE:WPP), and Avangrid, Inc. (NYSE:AGR). This group of stocks' market values are similar to CFG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FNV,18,532557,-1 MRVL,37,1148127,5 WPP,3,35860,-8 AGR,12,324913,-5 Average,17.5,510364,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $510 million. That figure was $1255 million in CFG's case. Marvell Technology Group Ltd. (NASDAQ:MRVL) is the most popular stock in this table. On the other hand WPP plc (NYSE:WPP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Citizens Financial Group Inc (NYSE:CFG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CFG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CFG were disappointed as the stock returned 1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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

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