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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 The PNC Financial Services Group Inc. (NYSE:PNC).
The PNC Financial Services Group Inc. (NYSE:PNC) shareholders have witnessed a decrease in hedge fund interest recently. The PNC Financial Services Group Inc. (NYSE:PNC) was in 38 hedge funds' portfolios at the end of June. The all time high for this statistic is 52. Our calculations also showed that PNC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was 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). So you can still find a lot of gems by following hedge funds' moves today.
Phillip Gross of Adage Capital
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. With all of this in mind we're going to view the new hedge fund action encompassing The PNC Financial Services Group Inc. (NYSE:PNC).
Do Hedge Funds Think PNC Is A Good Stock To Buy Now?
At the end of June, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the first quarter of 2020. On the other hand, there were a total of 52 hedge funds with a bullish position in PNC a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The PNC Financial Services Group Inc. (NYSE:PNC) was held by Citadel Investment Group, which reported holding $250 million worth of stock at the end of June. It was followed by Citadel Investment Group with a $86.4 million position. Other investors bullish on the company included Adage Capital Management, Balyasny Asset Management, and GAMCO Investors. In terms of the portfolio weights assigned to each position Strycker View Capital allocated the biggest weight to The PNC Financial Services Group Inc. (NYSE:PNC), around 8.74% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, setting aside 3 percent of its 13F equity portfolio to PNC.
Since The PNC Financial Services Group Inc. (NYSE:PNC) has experienced declining sentiment from the aggregate hedge fund industry, it's easy to see that there is a sect of funds who sold off their entire stakes heading into Q3. It's worth mentioning that Andrew Sandler's Sandler Capital Management cut the biggest position of all the hedgies followed by Insider Monkey, valued at about $4.9 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also dropped its stock, about $4.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as The PNC Financial Services Group Inc. (NYSE:PNC) but similarly valued. We will take a look at Brookfield Asset Management Inc. (NYSE:BAM), Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR), FedEx Corporation (NYSE:FDX), The Bank of Nova Scotia (NYSE:BNS), Mercadolibre Inc (NASDAQ:MELI), NetEase, Inc (NASDAQ:NTES), and CME Group Inc (NASDAQ:CME). This group of stocks' market valuations resemble PNC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BAM,34,1657528,0 PBR,25,2799044,-2 FDX,61,2170185,-2 BNS,14,223095,-5 MELI,74,4024188,5 NTES,43,3720524,11 CME,62,2649845,2 Average,44.7,2463487,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.7 hedge funds with bullish positions and the average amount invested in these stocks was $2463 million. That figure was $728 million in PNC's case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 14 bullish hedge fund positions. The 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 overall hedge fund sentiment score for PNC is 45.9. 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. A small number of hedge funds were also right about betting on PNC as the stock returned 6.1% since the end of the second quarter (through 10/11) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.