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Were Hedge Funds Illusioned With First Republic Bank (FRC)?

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Technology stocks had a lousy start to 2022. QQQ lost 9% of its value in January. Pandemic winners are getting crushed while energy stocks are surging. Roblox lost 36%, Moderna lost 33%, and Carvana and Shopify lost 30% of their values in January. We aren't certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards First Republic Bank (NYSE:FRC) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Is First Republic Bank (NYSE:FRC) the right pick for your portfolio? Prominent investors were getting more optimistic. The number of long hedge fund positions improved by 1 recently. First Republic Bank (NYSE:FRC) was in 35 hedge funds' portfolios at the end of September. The all time high for this statistic is 41. Our calculations also showed that FRC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 34 hedge funds in our database with FRC holdings at the end of June.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind let's review the new hedge fund action regarding First Republic Bank (NYSE:FRC).

Ian Wace Marshall Wace
Ian Wace Marshall Wace

Ian Wace of Marshall Wace

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

At the end of September, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in FRC 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.

When looking at the institutional investors followed by Insider Monkey, Robert Joseph Caruso's Select Equity Group has the largest position in First Republic Bank (NYSE:FRC), worth close to $538.2 million, amounting to 1.8% of its total 13F portfolio. The second largest stake is held by Junto Capital Management, led by James Parsons, holding a $52.2 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining peers with similar optimism consist of Israel Englander's Millennium Management, John Osterweis's Osterweis Capital Management and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Osterweis Capital Management allocated the biggest weight to First Republic Bank (NYSE:FRC), around 1.91% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, setting aside 1.81 percent of its 13F equity portfolio to FRC.

As industrywide interest jumped, key hedge funds were leading the bulls' herd. Junto Capital Management, managed by James Parsons, created the most outsized position in First Republic Bank (NYSE:FRC). Junto Capital Management had $52.2 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also made a $20.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Jinghua Yan's TwinBeech Capital.

Let's also examine hedge fund activity in other stocks similar to First Republic Bank (NYSE:FRC). These stocks are International Flavors & Fragrances Inc (NYSE:IFF), CoStar Group Inc (NASDAQ:CSGP), PPG Industries, Inc. (NYSE:PPG), BeiGene, Ltd. (NASDAQ:BGNE), Xcel Energy Inc (NASDAQ:XEL), The Trade Desk, Inc. (NASDAQ:TTD), and Archer Daniels Midland Company (NYSE:ADM). This group of stocks' market caps resemble FRC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IFF,46,2838241,-6 CSGP,29,2585035,-20 PPG,30,318414,4 BGNE,16,6418381,-5 XEL,26,498007,4 TTD,19,499103,-6 ADM,27,351486,-14 Average,27.6,1929810,-6.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $1930 million. That figure was $918 million in FRC's case. International Flavors & Fragrances Inc (NYSE:IFF) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 16 bullish hedge fund positions. First Republic Bank (NYSE:FRC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FRC is 63.3. 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. 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 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, FRC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on FRC were disappointed as the stock returned -9.8% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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