Did Hedge Funds Make The Right Call On First Citizens BancShares Inc. (FCNCA)?
How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding First Citizens BancShares Inc. (NASDAQ:FCNCA) and determine whether hedge funds had an edge regarding this stock.
First Citizens BancShares Inc. (NASDAQ:FCNCA) investors should pay attention to a decrease in hedge fund interest in recent months. FCNCA was in 17 hedge funds' portfolios at the end of March. There were 23 hedge funds in our database with FCNCA positions at the end of the previous quarter. Our calculations also showed that FCNCA 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.
To the average investor there are a multitude of metrics investors use to assess stocks. A couple of the most innovative metrics are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can trounce their index-focused peers by a superb margin (see the details here).
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let's analyze the recent hedge fund action encompassing First Citizens BancShares Inc. (NASDAQ:FCNCA).
How are hedge funds trading First Citizens BancShares Inc. (NASDAQ:FCNCA)?
At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in FCNCA a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of First Citizens BancShares Inc. (NASDAQ:FCNCA), with a stake worth $50.3 million reported as of the end of September. Trailing AQR Capital Management was Royce & Associates, which amassed a stake valued at $37.4 million. Renaissance Technologies, Citadel Investment Group, and Arrowstreet Capital 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 Huber Capital Management allocated the biggest weight to First Citizens BancShares Inc. (NASDAQ:FCNCA), around 0.75% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, dishing out 0.58 percent of its 13F equity portfolio to FCNCA.
Due to the fact that First Citizens BancShares Inc. (NASDAQ:FCNCA) has witnessed a decline in interest from hedge fund managers, it's easy to see that there was a specific group of money managers who were dropping their full holdings heading into Q4. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP sold off the biggest investment of all the hedgies watched by Insider Monkey, totaling about $6.4 million in stock. Noam Gottesman's fund, GLG Partners, also dumped its stock, about $1.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 6 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to First Citizens BancShares Inc. (NASDAQ:FCNCA). We will take a look at The Hanover Insurance Group, Inc. (NYSE:THG), Switch, Inc. (NYSE:SWCH), TCF Financial Corporation (NYSE:TCF), and Emcor Group Inc (NYSE:EME). This group of stocks' market caps resemble FCNCA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THG,24,134965,3 SWCH,24,394487,6 TCF,19,100615,-5 EME,24,201184,-5 Average,22.75,207813,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $129 million in FCNCA's case. The Hanover Insurance Group, Inc. (NYSE:THG) is the most popular stock in this table. On the other hand TCF Financial Corporation (NYSE:TCF) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks First Citizens BancShares Inc. (NASDAQ:FCNCA) is even less popular than TCF. Hedge funds dodged a bullet by taking a bearish stance towards FCNCA. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but managed to beat the market by 17.1 percentage points. Unfortunately FCNCA wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); FCNCA investors were disappointed as the stock returned 22.9% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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