American International Group Inc (AIG), Citigroup Inc. (C) & JPMorgan Chase & Co. (JPM) Lead The Most Popular Financial Stocks In The Hedge Fund Industry
There are a number of things we look for when hedge funds and other major investors release their quarterly 13F filings. Of course, any new picks from star investors such as Warren Buffett or David Einhorn get our attention. In addition, we’ve found that the most popular small cap stocks among hedge funds tend to outperform the S&P 500 by 18 percentage points per year on average (learn more about our small cap strategy) and we like to update our model portfolio following this strategy (this portfolio returned 33 percentage points above the market over the last 11 months). It can also be useful to see which stocks are hedge fund favorites in particular sectors or industries- not to blindly follow these picks, but to see which segments of the sector or industry funds like and if there are any interesting ideas there. Here are the ten finance and insurance stocks which the largest number of filers in our database reported owning as of the end of June:
The top pick in this area was American International Group Inc (NYSE:AIG), the second most popular pick overall (check out the full top ten list). The insurer has done fairly well over the last year but still trades at a discount to the book value of its equity with a P/B ratio of 0.7. Recent reports also show moderate growth in both revenue and earnings compared to a year ago.
Hedge funds’ favorite bank is Citigroup Inc. (NYSE:C); 121 funds reported owning the stock in their filings. Among them was billionaire David Tepper’s Appaloosa Management, which increased its stake to a total of 9.6 million shares (see Tepper's stock picks). Citigroup Inc. (NYSE:C) is another financial trading at a discount to book (the P/B ratio here is 0.8) and analyst expectations for next year imply a forward P/E of 9.
JPMorgan Chase & Co. (NYSE:JPM) is another popular financial among hedge funds. The bank has been encountering legal problems, which may be part of the reason why it is trading clearly in value territory- both the trailing and forward earnings multiples are 9. Fisher Asset Management, managed by billionaire Ken Fisher, owned over 13 million shares (research more stocks Fisher owns).
Several funds closed their positions in Bank of America Corp (NYSE:BAC) last quarter, but it still kept a spot among the most popular financials. The discount to book is particularly significant here, though the bank is dependent on cost cutting to prove a good value from an earnings perspective. Billionaire Kerr Neilson’s Platinum Asset Management is one significant shareholder (see more stocks in Neilson's portfolio).
Warren Buffett is known as a big fan of Wells Fargo & Co (NYSE:WFC), and his holding company Berkshire Hathaway led our list of significant shareholders of that bank. Find Buffett's favorite stocks. Wells Fargo & Co (NYSE:WFC)’s earnings multiples are in line with those of its peers, even though its perceived safety results in a staggeringly high (by comparison) P/B of 1.5.
57 funds and other investors had Goldman Sachs Group, Inc. (NYSE:GS) in their portfolio at the end of June, placing the pure-play investment bank behind its integrated peers. Cliff Asness’s AQR Capital Management was buying Goldman Sachs Group, Inc. (NYSE:GS) during Q2 (check out more stocks Asness liked).
Metlife Inc (NYSE:MET) marks the second and last insurer on this top ten list. As with American International Group Inc (NYSE:AIG), the stock trades below book value and the forward P/E is fairly low. Viking Global, managed by billionaire Andreas Halvorsen, initiated a position between April and June (see more of Halvorsen's stock picks).
Morgan Stanley (NYSE:MS)’s popularity fell from 61 funds at the end of March to 49 funds three months later. In addition, may shareholders such as billionaire Bruce Kovner’s Caxton Associates reduced the size of their position. Morgan Stanley (NYSE:MS) is another bank dependent on cost cutting to improve shareholder value.
In contrast, hedge funds were piling into real estate broker and brokerage franchisor Realogy Holdings Corp (NYSE:RLGY), likely seeing it as a way to play a prospering housing market. Multiple Tiger Cub funds, including billionaire Stephen Mandel’s Lone Pine Capital, were buying (here are more of Mandel's picks).
Finishing off our list is $68 billion market cap retail and commercial bank U.S. Bancorp (NYSE:USB). Without as much exposure to the investment bank business, recent results have been about flat though the trailing and forward P/Es are only 13 and 12 respectively.
Disclosure: I own no shares of any stocks mentioned in this article.