Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
First Citizens BancShares Inc. (NASDAQ:FCNCA) has seen a decrease in enthusiasm from smart money recently. FCNCA was in 18 hedge funds' portfolios at the end of March. There were 22 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.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's go over the fresh 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 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in FCNCA a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in First Citizens BancShares Inc. (NASDAQ:FCNCA) was held by Royce & Associates, which reported holding $58.2 million worth of stock at the end of March. It was followed by Millennium Management with a $21.8 million position. Other investors bullish on the company included AQR Capital Management, Huber Capital Management, and D E Shaw.
Because First Citizens BancShares Inc. (NASDAQ:FCNCA) has witnessed falling interest from the smart money, it's easy to see that there was a specific group of fund managers that slashed their entire stakes in the third quarter. Interestingly, Paul Marshall and Ian Wace's Marshall Wace LLP dumped the biggest position of all the hedgies monitored by Insider Monkey, worth an estimated $6.3 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund dropped about $0.8 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to First Citizens BancShares Inc. (NASDAQ:FCNCA). We will take a look at PLDT Inc. (NYSE:PHI), ONE Gas Inc (NYSE:OGS), Cinemark Holdings, Inc. (NYSE:CNK), and Webster Financial Corporation (NYSE:WBS). All of these stocks' market caps are closest to FCNCA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PHI,5,67170,0 OGS,15,100719,-2 CNK,20,226209,3 WBS,25,303490,-1 Average,16.25,174397,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $140 million in FCNCA's case. Webster Financial Corporation (NYSE:WBS) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 5 bullish hedge fund positions. First Citizens BancShares Inc. (NASDAQ:FCNCA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on FCNCA as the stock returned 4% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.