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Were Hedge Funds Right About Buying U.S. Bancorp (USB)?

Debasis Saha

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtU.S. Bancorp (NYSE:USB) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is U.S. Bancorp (NYSE:USB) going to take off soon? The smart money was becoming more confident. The number of bullish hedge fund positions advanced by 1 recently. Our calculations also showed that USB isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). USB was in 51 hedge funds' portfolios at the end of March. There were 50 hedge funds in our database with USB holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_340081" align="aligncenter" width="400"] Phill Gross of Adage Capital Management[/caption]

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a glance at the key hedge fund action encompassing U.S. Bancorp (NYSE:USB).

What have hedge funds been doing with U.S. Bancorp (NYSE:USB)?

At Q1's end, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from one quarter earlier. By comparison, 44 hedge funds held shares or bullish call options in USB 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.

Is USB A Good Stock To Buy?
Is USB A Good Stock To Buy?

More specifically, Berkshire Hathaway was the largest shareholder of U.S. Bancorp (NYSE:USB), with a stake worth $4563.2 million reported as of the end of September. Trailing Berkshire Hathaway was Citadel Investment Group, which amassed a stake valued at $216.8 million. Yacktman Asset Management, D E Shaw, and Arrowstreet Capital 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 Steel Canyon Capital allocated the biggest weight to U.S. Bancorp (NYSE:USB), around 5.59% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, setting aside 4.63 percent of its 13F equity portfolio to USB.

As aggregate interest increased, some big names have been driving this bullishness. D1 Capital Partners, managed by Daniel Sundheim, assembled the most outsized position in U.S. Bancorp (NYSE:USB). D1 Capital Partners had $68.9 million invested in the company at the end of the quarter. Clint Carlson's Carlson Capital also made a $27.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Daniel Johnson's Gillson Capital, Renaissance Technologies, and Benjamin A. Smith's Laurion Capital Management.

Let's now take a look at hedge fund activity in other stocks similar to U.S. Bancorp (NYSE:USB). We will take a look at Morgan Stanley (NYSE:MS), Northrop Grumman Corporation (NYSE:NOC), VMware, Inc. (NYSE:VMW), and Chubb Limited (NYSE:CB). All of these stocks' market caps are similar to USB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MS,70,3116102,10 NOC,45,984213,1 VMW,27,420625,-6 CB,33,691382,9 Average,43.75,1303081,3.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.75 hedge funds with bullish positions and the average amount invested in these stocks was $1303 million. That figure was $5626 million in USB's case. Morgan Stanley (NYSE:MS) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 27 bullish hedge fund positions. U.S. Bancorp (NYSE:USB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately USB wasn't nearly as popular as these 10 stocks and hedge funds that were betting on USB were disappointed as the stock returned 8.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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