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Was The Smart Money Right About Truist Financial Corporation (TFC)?

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In this article we are going to use hedge fund sentiment as a tool and determine whether Truist Financial Corporation (NYSE:TFC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Truist Financial Corporation (NYSE:TFC) ready to rally soon? Prominent investors were turning bullish. The number of bullish hedge fund positions improved by 11 in recent months. Truist Financial Corporation (NYSE:TFC) was in 40 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 45. Our calculations also showed that TFC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 29 hedge funds in our database with TFC holdings at the end of September.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

BRIDGEWATER ASSOCIATES
BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 let's review the recent hedge fund action surrounding Truist Financial Corporation (NYSE:TFC).

Do Hedge Funds Think TFC Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from one quarter earlier. On the other hand, there were a total of 35 hedge funds with a bullish position in TFC a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in Truist Financial Corporation (NYSE:TFC), which was worth $301.2 million at the end of the fourth quarter. On the second spot was Millennium Management which amassed $63 million worth of shares. Citadel Investment Group, Gillson Capital, and Schonfeld Strategic Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Soapstone Capital allocated the biggest weight to Truist Financial Corporation (NYSE:TFC), around 4.13% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, designating 2.28 percent of its 13F equity portfolio to TFC.

As one would reasonably expect, key hedge funds were leading the bulls' herd. Diamond Hill Capital, managed by Ric Dillon, established the biggest position in Truist Financial Corporation (NYSE:TFC). Diamond Hill Capital had $301.2 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $22.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Ray Dalio's Bridgewater Associates, and William Harnisch's Peconic Partners LLC.

Let's now take a look at hedge fund activity in other stocks similar to Truist Financial Corporation (NYSE:TFC). These stocks are Illinois Tool Works Inc. (NYSE:ITW), Global Payments Inc (NYSE:GPN), Equinix, Inc. (REIT) (NASDAQ:EQIX), The PNC Financial Services Group Inc. (NYSE:PNC), Brookfield Asset Management Inc. (NYSE:BAM), Ecolab Inc. (NYSE:ECL), and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). This group of stocks' market values match TFC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ITW,40,704116,1 GPN,55,5554643,-2 EQIX,42,2001101,0 PNC,35,188415,-2 BAM,38,1330514,3 ECL,45,2449625,-7 VRTX,53,3108859,-2 Average,44,2191039,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $2191 million. That figure was $526 million in TFC's case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand The PNC Financial Services Group Inc. (NYSE:PNC) is the least popular one with only 35 bullish hedge fund positions. Truist Financial Corporation (NYSE:TFC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TFC is 49.2. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on TFC as the stock returned 24.8% since the end of the fourth quarter (through 4/30) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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