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

Reymerlyn Martin
·6 min read

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards U.S. Bancorp (NYSE:USB).

Is U.S. Bancorp (NYSE:USB) a buy right now? Prominent investors were becoming less hopeful. The number of bullish hedge fund positions dropped by 3 in recent months. U.S. Bancorp (NYSE:USB) was in 48 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 53. Our calculations also showed that USB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 51 hedge funds in our database with USB holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to check out the recent hedge fund action surrounding U.S. Bancorp (NYSE:USB).

What does smart money think about U.S. Bancorp (NYSE:USB)?

At the end of the second quarter, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 39 hedge funds with a bullish position in USB 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.

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

The largest stake in U.S. Bancorp (NYSE:USB) was held by Berkshire Hathaway, which reported holding $4858.8 million worth of stock at the end of September. It was followed by D1 Capital Partners with a $651.3 million position. Other investors bullish on the company included Yacktman Asset Management, D E Shaw, and AQR Capital Management. In terms of the portfolio weights assigned to each position Gillson Capital allocated the biggest weight to U.S. Bancorp (NYSE:USB), around 4.92% of its 13F portfolio. D1 Capital Partners is also relatively very bullish on the stock, dishing out 4.86 percent of its 13F equity portfolio to USB.

Due to the fact that U.S. Bancorp (NYSE:USB) has witnessed declining sentiment from the smart money, it's safe to say that there lies a certain "tier" of hedgies who were dropping their entire stakes last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the biggest stake of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $95 million in stock, and Renaissance Technologies was right behind this move, as the fund cut about $17 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as U.S. Bancorp (NYSE:USB) but similarly valued. We will take a look at Applied Materials, Inc. (NASDAQ:AMAT), Illinois Tool Works Inc. (NYSE:ITW), America Movil SAB de CV (NYSE:AMX), The Southern Company (NYSE:SO), Illumina, Inc. (NASDAQ:ILMN), Marsh & McLennan Companies, Inc. (NYSE:MMC), and Uber Technologies, Inc. (NYSE:UBER). This group of stocks' market values are similar to USB's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMAT,58,2461809,2 ITW,35,565341,1 AMX,11,97994,0 SO,38,360503,5 ILMN,41,1193190,7 MMC,38,846796,1 UBER,94,5388672,-3 Average,45,1559186,1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45 hedge funds with bullish positions and the average amount invested in these stocks was $1559 million. That figure was $6299 million in USB's case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 11 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. Our overall hedge fund sentiment score for USB is 51.5. 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 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 30% in 2020 through October 23rd and beat the market by 21 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 11.7% since the end of June (through 10/23) 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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