Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards PNC Financial Services Group Inc. (NYSE:PNC).
PNC Financial Services Group Inc. (NYSE:PNC) investors should pay attention to an increase in hedge fund sentiment of late. PNC was in 39 hedge funds' portfolios at the end of the third quarter of 2019. There were 38 hedge funds in our database with PNC holdings at the end of the previous quarter. Our calculations also showed that PNC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_255014" align="aligncenter" width="600"] Clint Carlson of Carlson Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's check out the new hedge fund action regarding PNC Financial Services Group Inc. (NYSE:PNC).
How are hedge funds trading PNC Financial Services Group Inc. (NYSE:PNC)?
Heading into the fourth quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in PNC over the last 17 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 PNC Financial Services Group Inc. (NYSE:PNC) was held by Berkshire Hathaway, which reported holding $1215.3 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $169.2 million position. Other investors bullish on the company included Citadel Investment Group, Adage Capital Management, and Carlson Capital. In terms of the portfolio weights assigned to each position Gillson Capital allocated the biggest weight to PNC Financial Services Group Inc. (NYSE:PNC), around 6.14% of its portfolio. Third Avenue Management is also relatively very bullish on the stock, setting aside 3.43 percent of its 13F equity portfolio to PNC.
Consequently, some big names were breaking ground themselves. Centiva Capital, managed by Karim Abbadi and Edward McBride, assembled the most outsized call position in PNC Financial Services Group Inc. (NYSE:PNC). Centiva Capital had $9.5 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital, Israel Englander's Millennium Management, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as PNC Financial Services Group Inc. (NYSE:PNC) but similarly valued. These stocks are Intuitive Surgical, Inc. (NASDAQ:ISRG), Anthem Inc (NYSE:ANTM), VMware, Inc. (NYSE:VMW), and S&P Global Inc. (NYSE:SPGI). This group of stocks' market values are closest to PNC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ISRG,41,1400552,4 ANTM,59,3721999,-7 VMW,35,985185,1 SPGI,69,3925199,11 Average,51,2508234,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 51 hedge funds with bullish positions and the average amount invested in these stocks was $2508 million. That figure was $2074 million in PNC's case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 35 bullish hedge fund positions. PNC Financial Services Group Inc. (NYSE:PNC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on PNC, though not to the same extent, as the stock returned 10.2% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.