Several big-name hedge fund investors remained significantly underweight financial stocks at the end of the third quarter, helping sow the seeds of the rally in bank shares following Donald Trump's surprising victory in the US presidential race.
Omega Advisors, run by billionaire Leon Cooperman and Steven Einhorn, dissolved its stake in Citigroup Inc and significantly cut its positions in Synchrony Financial during the quarter that ended September 30, according to regulatory filings. Shares of both companies are up by more than 10 percent over the last five days. Third Point LLC, meanwhile, run by billionaire Daniel S. Loeb, significantly cut its position in Chubb Limited in the same quarter. Shares of the insurance company are up nearly 4 percent since Trump's victory.
David Tepper's Appaloosa hedge fund firm was one of the few prominent funds to add to its stake in financials prior to the election. It added new positions in Bank of America Corp and Citizens Financial Group Inc, according to regulatory filings. Shares of Bank of America are up 21.3 percent over the last 5 days, including a 5.5 percent jump Monday alone.
Warren Buffet's Berkshire Hathaway slightly added to its position in Bank of New York Mellon Corp and made no change in its holdings of Wells Fargo & Co despite its former chief executive, John Stumpf, stepping down on October 12 following a scandal over the company's sales tactics. Trump's administration is expected to provide a large financial stimulus through a combination of infrastructure spending and tax cuts, pushing inflation higher and cutting into the allure of fixed income. A global selloff in bond markets wiped out more than $1 trillion in the two days following his victory.
Financial companies in the S&P 500, which would benefit from higher interest rates and lighter regulation, are up 11.3 percent over the last week. The swift move into financial stocks since Election Day reflects both the anticipation of higher US interest rates and a push by underperforming fund managers to chase momentum, said Todd Rosenbluth, director of fund research at New York-based CFRA Research, formerly called S&P Global Market Intelligence. The average hedge fund is up 3.6 percent for the year to date, or about half of the 5.8 percent gain in the broad S&P 500 index. "The environment has shifted and it's forcing many managers to start playing catch up," he said.
The quarterly disclosures of manager stock holdings, in what are known as 13F filings with the US Securities and Exchange Commission, are always intriguing for investors trying to divine a pattern in what savvy traders are selling and buying.
But relying on the filings to develop an investment strategy comes with some risk because the disclosures are backward looking and come out 45 days after the end of each quarter. It is unknown if Omega and Third Point have added to their position in financials and banks since the end of the third quarter and ahead of the November post-election financial rally.
Still, the records offer a glimpse into what hedge fund managers saw as opportunities to make money on the long side. The filings do not disclose short positions, bets that a stock will fall in price. And there is also little disclosure on bonds and other securities that do not trade on exchanges.
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