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Where Do Hedge Funds Stand On Citigroup Inc. (C)?

Reymerlyn Martin
·6 min read

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Citigroup Inc. (NYSE:C) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Citigroup Inc. (NYSE:C) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. Citigroup Inc. (NYSE:C) was in 91 hedge funds' portfolios at the end of September. The all time high for this statistics is 121. There were 96 hedge funds in our database with C holdings at the end of June. Our calculations also showed that C ranked 23rd among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 66 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.

Jeff Ubben VALUEACT CAPITAL
Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla's stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. 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. With all of this in mind we're going to analyze the latest hedge fund action surrounding Citigroup Inc. (NYSE:C).

What have hedge funds been doing with Citigroup Inc. (NYSE:C)?

At third quarter's end, a total of 91 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in C over the last 21 quarters. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, ValueAct Capital held the most valuable stake in Citigroup Inc. (NYSE:C), which was worth $1165.1 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $1000.3 million worth of shares. Diamond Hill Capital, Pzena Investment Management, and Citadel Investment Group 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 Meru Capital allocated the biggest weight to Citigroup Inc. (NYSE:C), around 16.58% of its 13F portfolio. Tegean Capital Management is also relatively very bullish on the stock, earmarking 16.47 percent of its 13F equity portfolio to C.

Judging by the fact that Citigroup Inc. (NYSE:C) has faced falling interest from the smart money, we can see that there exists a select few hedgies that slashed their full holdings heading into Q4. Intriguingly, John Armitage's Egerton Capital Limited dropped the biggest investment of the 750 funds tracked by Insider Monkey, comprising close to $106.4 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $54.8 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 5 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Citigroup Inc. (NYSE:C) but similarly valued. We will take a look at Pinduoduo Inc. (NASDAQ:PDD), Raytheon Technologies Corp (NYSE:RTX), S&P Global Inc. (NYSE:SPGI), BlackRock, Inc. (NYSE:BLK), Intuit Inc. (NASDAQ:INTU), Toronto-Dominion Bank (NYSE:TD), and Intuitive Surgical, Inc. (NASDAQ:ISRG). This group of stocks' market caps are closest to C's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PDD,34,4331330,4 RTX,55,2988856,-4 SPGI,71,3030583,0 BLK,39,922746,2 INTU,54,1822831,1 TD,15,97067,0 ISRG,50,1351177,7 Average,45.4,2077799,1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.4 hedge funds with bullish positions and the average amount invested in these stocks was $2078 million. That figure was $5545 million in C's case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Citigroup Inc. (NYSE:C) is more popular among hedge funds. Our overall hedge fund sentiment score for C is 72.6. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 28.1% in 2020 through November 23rd but still managed to beat the market by 15.4 percentage points. Hedge funds were also right about betting on C as the stock returned 25.2% since the end of September (through 11/23) 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.

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

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