At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Regions Financial Corporation (NYSE:RF) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Regions Financial Corporation (NYSE:RF) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 37 hedge funds' portfolios at the end of March. At the end of this article we will also compare RF to other stocks including Universal Health Services, Inc. (NYSE:UHS), EXACT Sciences Corporation (NASDAQ:EXAS), and Allegion plc (NYSE:ALLE) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. 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. Now let's take a gander at the recent hedge fund action regarding Regions Financial Corporation (NYSE:RF).
How are hedge funds trading Regions Financial Corporation (NYSE:RF)?
At the end of the first quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 41 hedge funds with a bullish position in RF a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Two Sigma Advisors held the most valuable stake in Regions Financial Corporation (NYSE:RF), which was worth $57 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $49.2 million worth of shares. Arrowstreet Capital, Point72 Asset Management, and Balyasny Asset Management 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 Elizabeth Park Capital Management allocated the biggest weight to Regions Financial Corporation (NYSE:RF), around 2.98% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, earmarking 2.46 percent of its 13F equity portfolio to RF.
Seeing as Regions Financial Corporation (NYSE:RF) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of hedge funds that elected to cut their full holdings heading into Q4. At the top of the heap, Israel Englander's Millennium Management cut the largest position of all the hedgies monitored by Insider Monkey, totaling an estimated $51.3 million in stock, and Michael Price's MFP Investors was right behind this move, as the fund said goodbye to about $5.4 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Regions Financial Corporation (NYSE:RF). These stocks are Universal Health Services, Inc. (NYSE:UHS), EXACT Sciences Corporation (NASDAQ:EXAS), Allegion plc (NYSE:ALLE), and Pinnacle West Capital Corporation (NYSE:PNW). This group of stocks' market valuations match RF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UHS,30,443724,-1 EXAS,34,514351,-7 ALLE,31,404344,6 PNW,25,923395,0 Average,30,571454,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $571 million. That figure was $235 million in RF's case. EXACT Sciences Corporation (NASDAQ:EXAS) is the most popular stock in this table. On the other hand Pinnacle West Capital Corporation (NYSE:PNW) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Regions Financial Corporation (NYSE:RF) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on RF as the stock returned 25.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Get real-time email alerts: Follow Regions Financial Corp (NYSE:RF)
Disclosure: None. This article was originally published at Insider Monkey.