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How Citigroup and Other Hedge Fund Favorites Performed in Q2

Insider Monkey Staff

Insider Monkey tracks hedge funds, billionaires, and prominent value investors for a very simple reason: their consensus picks generally outperform the market. We aren’t the only research shop broadcasting this fact using a bullhorn. Here is what strategist Ben Snider said in Goldman Sachs’ periodic hedge fund report:

“Despite the strong track record of popular hedge fund stocks, investors often view high ownership as a negative trait when evaluating stock prospects. Clients often ask us to include hedge fund ownership data in stock screens, expressing a preference for buying ‘under-owned’ stocks.”

“In fact, during the past decade hedge fund popularity has been a more useful criterion for selecting stocks than valuations…. The signals from hedge fund popularity and valuation have been particularly useful in combination, especially for investors with slightly longer investment horizons. During the past decade, popular stocks have generally outperformed unpopular stocks across both 3- and 12-month investment horizons” Snider concluded.

It may sound like I am tooting my own horn, but Insider Monkey’s quarterly newsletter is actually superior to Goldman’s report. That’s because we separated the hedge fund favorites into long and short buckets. Our long bucket of hedge fund favorites returned 34.1% in the first half of 2019, whereas our short bucket of hedge fund favorites gained 21.4% during the same period. Hedge funds’ favorite top 20 stocks, on the other hand, returned 24% so far in 2019. You could have beaten the S&P 500 Index funds by 5.7 percentage points by investing in hedge funds’ top 20 picks in 2019, whereas you could have outperformed the index funds by 15.8 percentage points if you invested in our top hedge fund picks. You can try out our newsletter free of charge for 14 days to see hedge funds’ latest best stock picks.

The #18 most popular stock among the 743 hedge funds tracked by Insider Monkey was Citigroup Inc. (NYSE:C).  Citigroup was also the 14th most popular stock among hedge funds at the end of December (see the 30 most popular stocks among hedge funds).

We have to warn you against indiscriminately imitating hedge funds' all stock picks. Hedge funds' top 20 stock picks outperformed the S&P 500 Index funds by 5.7 percentage points this year, but hedge funds' top 500 stock picks had the same return as the S&P 500 Index this quarter. Investing in a hedge fund's 35th best idea doesn't give you the same return as investing in a hedge fund's best idea.

[caption id="attachment_30493" align="aligncenter" width="498"] Jeff Ubben of ValueAct Capital[/caption]

Jeff Ubben VALUEACT CAPITAL

We're going to check out the recent hedge fund action regarding Citigroup Inc. (NYSE:C).

What does smart money think about Citigroup Inc. (NYSE:C)?

At Q1's end, a total of 87 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards C over the last 15 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

C_may2019

Among these funds, ValueAct Capital held the most valuable stake in Citigroup Inc. (NYSE:C), which was worth $1961.5 million at the end of the first quarter. On the second spot was Eagle Capital Management which amassed $1666.6 million worth of shares. Moreover, Greenhaven Associates, Diamond Hill Capital, and Pzena Investment Management were also bullish on Citigroup Inc. (NYSE:C), allocating a large percentage of their portfolios to this stock.

Because Citigroup Inc. (NYSE:C) has witnessed a decline in interest from the smart money, it's easy to see that there was a specific group of fund managers that decided to sell off their full holdings in the third quarter. It's worth mentioning that Robert Pohly's Samlyn Capital dropped the largest stake of the "upper crust" of funds followed by Insider Monkey, worth close to $52.5 million in stock, and Irving Kahn's Kahn Brothers was right behind this move, as the fund dropped about $49.3 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds in the third quarter.

Let's go over hedge fund activity in other stocks similar to Citigroup Inc. (NYSE:C). These stocks are McDonald's Corporation (NYSE:MCD), TOTAL S.A. (NYSE:TOT), Abbott Laboratories (NYSE:ABT), and BHP Billiton Limited (NYSE:BHP). This group of stocks' market values are similar to C's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MCD,54,3120539,6 TOT,13,971886,4 ABT,50,1859812,-1 BHP,15,637521,0 Average,33,1647440,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1647 million. That figure was $9190 million in C's case. McDonald's Corporation (NYSE:MCD) is the most popular stock in this table. On the other hand TOTAL S.A. (NYSE:TOT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Citigroup Inc. (NYSE:C) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by more than 2 percentage points. Hedge funds were also right about betting on C as the stock returned 13.3% during the same period and outperformed the market by an even larger margin. Citigroup shares also returned more than 36% so far in 2019. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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