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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Fifth Third Bancorp (NASDAQ:FITB).
Is Fifth Third Bancorp (NASDAQ:FITB) a buy, sell, or hold? The smart money was taking a bullish view. The number of bullish hedge fund bets advanced by 3 in recent months. Fifth Third Bancorp (NASDAQ:FITB) was in 41 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 43. Our calculations also showed that FITB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Paul Marshall of Marshall Wace
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let's take a peek at the recent hedge fund action surrounding Fifth Third Bancorp (NASDAQ:FITB).
Do Hedge Funds Think FITB Is A Good Stock To Buy Now?
Heading into the third quarter of 2021, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards FITB over the last 24 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Fifth Third Bancorp (NASDAQ:FITB) was held by Pzena Investment Management, which reported holding $65.6 million worth of stock at the end of June. It was followed by Adage Capital Management with a $57.7 million position. Other investors bullish on the company included Holocene Advisors, Schonfeld Strategic Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Hourglass Capital allocated the biggest weight to Fifth Third Bancorp (NASDAQ:FITB), around 3.09% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, dishing out 0.72 percent of its 13F equity portfolio to FITB.
As industrywide interest jumped, key hedge funds have jumped into Fifth Third Bancorp (NASDAQ:FITB) headfirst. McKinley Capital Management, established the most outsized position in Fifth Third Bancorp (NASDAQ:FITB). McKinley Capital Management had $10.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $6.4 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw's D E Shaw, Marc Lisker, Glenn Fuhrman and John Phelan's MSDC Management, and Jinghua Yan's TwinBeech Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Fifth Third Bancorp (NASDAQ:FITB) but similarly valued. These stocks are Alexandria Real Estate Equities Inc (NYSE:ARE), Rogers Communications Inc. (NYSE:RCI), Sirius XM Holdings Inc (NASDAQ:SIRI), Genmab A/S (NASDAQ:GMAB), Ball Corporation (NYSE:BLL), West Pharmaceutical Services Inc. (NYSE:WST), and RingCentral Inc (NYSE:RNG). This group of stocks' market caps are similar to FITB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARE,28,583759,1 RCI,17,357300,-1 SIRI,26,577536,2 GMAB,9,116722,-4 BLL,44,1570958,6 WST,31,562904,5 RNG,47,3285023,-4 Average,28.9,1007743,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $1008 million. That figure was $360 million in FITB's case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 9 bullish hedge fund positions. Fifth Third Bancorp (NASDAQ:FITB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FITB is 78.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on FITB as the stock returned 14.5% since the end of Q2 (through 10/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.