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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 Republic Bank (NYSE:FRC).
First Republic Bank (NYSE:FRC) investors should pay attention to an increase in enthusiasm from smart money in recent months. First Republic Bank (NYSE:FRC) was in 41 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 37. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 34 hedge funds in our database with FRC positions at the end of the fourth quarter. Our calculations also showed that FRC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the eyes of most traders, hedge funds are viewed as slow, outdated investment tools of yesteryear. While there are over 8000 funds trading at present, Our researchers choose to focus on the elite of this club, approximately 850 funds. These investment experts shepherd most of all hedge funds' total asset base, and by tailing their top investments, Insider Monkey has identified many investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
Clint Carlson of Carlson Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. With all of this in mind we're going to take a look at the fresh hedge fund action regarding First Republic Bank (NYSE:FRC).
Do Hedge Funds Think FRC Is A Good Stock To Buy Now?
At first quarter's end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FRC over the last 23 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Robert Joseph Caruso's Select Equity Group has the most valuable position in First Republic Bank (NYSE:FRC), worth close to $656 million, corresponding to 2.4% of its total 13F portfolio. The second largest stake is held by Matthew Stadelman of Diamond Hill Capital, with a $390.4 million position; 1.6% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions include John Osterweis's Osterweis Capital Management, Paul Marshall and Ian Wace's Marshall Wace LLP and Clint Carlson's Carlson Capital. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to First Republic Bank (NYSE:FRC), around 2.38% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, earmarking 1.98 percent of its 13F equity portfolio to FRC.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Carlson Capital, managed by Clint Carlson, initiated the most valuable position in First Republic Bank (NYSE:FRC). Carlson Capital had $21 million invested in the company at the end of the quarter. Matthew L Pinz's Pinz Capital also initiated a $7 million position during the quarter. The following funds were also among the new FRC investors: Paul Tudor Jones's Tudor Investment Corp, D. E. Shaw's D E Shaw, and Donald Sussman's Paloma Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as First Republic Bank (NYSE:FRC) but similarly valued. These stocks are ViacomCBS Inc. (NASDAQ:VIAC), Okta, Inc. (NASDAQ:OKTA), Fastenal Company (NASDAQ:FAST), The Williams Companies, Inc. (NYSE:WMB), Verisk Analytics, Inc. (NASDAQ:VRSK), Best Buy Co., Inc. (NYSE:BBY), and Waste Connections, Inc. (NYSE:WCN). This group of stocks' market caps are similar to FRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VIAC,89,2349597,45 OKTA,48,1616565,-13 FAST,24,576286,-6 WMB,34,475466,-4 VRSK,34,1584703,2 BBY,33,957600,-5 WCN,31,822237,-4 Average,41.9,1197493,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.9 hedge funds with bullish positions and the average amount invested in these stocks was $1197 million. That figure was $1262 million in FRC's case. ViacomCBS Inc. (NASDAQ:VIAC) is the most popular stock in this table. On the other hand Fastenal Company (NASDAQ:FAST) is the least popular one with only 24 bullish hedge fund positions. First Republic Bank (NYSE:FRC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FRC is 53.1. 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 17.4% in 2021 through June 18th and beat the market by 6.1 percentage points. A small number of hedge funds were also right about betting on FRC, though not to the same extent, as the stock returned 7.1% since the end of Q1 (through June 18th) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.