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Were Hedge Funds Right About Dumping Fifth Third Bancorp (FITB)?

Nina Todic

The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Fifth Third Bancorp (NASDAQ:FITB) and find out how it is affected by hedge funds' moves.

Is Fifth Third Bancorp (NASDAQ:FITB) a good stock to buy now? Investors who are in the know are in a pessimistic mood. The number of long hedge fund bets decreased by 9 in recent months. Our calculations also showed that FITB isn't among the 30 most popular stocks among hedge funds. FITB was in 29 hedge funds' portfolios at the end of the second quarter of 2019. There were 38 hedge funds in our database with FITB positions at the end of the previous quarter.

Today there are many metrics market participants can use to value their holdings. A couple of the most under-the-radar metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the top money managers can outpace the market by a solid margin (see the details here).

Izzy Englander of MILLENNIUM MANAGEMENT

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the recent hedge fund action regarding Fifth Third Bancorp (NASDAQ:FITB).

What have hedge funds been doing with Fifth Third Bancorp (NASDAQ:FITB)?

At the end of the second quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in FITB a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with FITB Positions

Among these funds, Citadel Investment Group held the most valuable stake in Fifth Third Bancorp (NASDAQ:FITB), which was worth $284.7 million at the end of the second quarter. On the second spot was Pzena Investment Management which amassed $115.2 million worth of shares. Moreover, Millennium Management, Arrowstreet Capital, and Two Sigma Advisors were also bullish on Fifth Third Bancorp (NASDAQ:FITB), allocating a large percentage of their portfolios to this stock.

Seeing as Fifth Third Bancorp (NASDAQ:FITB) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there were a few hedgies who sold off their full holdings heading into Q3. Interestingly, D. E. Shaw's D E Shaw dumped the largest stake of the 750 funds tracked by Insider Monkey, comprising close to $24.8 million in stock, and John Brennan's Sirios Capital Management was right behind this move, as the fund dumped about $12.1 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 9 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Fifth Third Bancorp (NASDAQ:FITB). These stocks are Boston Properties, Inc. (NYSE:BXP), Hewlett Packard Enterprise Company (NYSE:HPE), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Synopsys, Inc. (NASDAQ:SNPS). This group of stocks' market caps resemble FITB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BXP,23,419884,-4 HPE,28,836943,-2 CMG,37,3383462,2 SNPS,42,1551375,11 Average,32.5,1547916,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1548 million. That figure was $815 million in FITB's case. Synopsys, Inc. (NASDAQ:SNPS) is the most popular stock in this table. On the other hand Boston Properties, Inc. (NYSE:BXP) is the least popular one with only 23 bullish hedge fund positions. Fifth Third Bancorp (NASDAQ:FITB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FITB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FITB investors were disappointed as the stock returned -1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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