The iShares Dow Jones U.S. Regional Banks ETF (IAT) is down two-thirds since inception in early 2007, mostly on account of the impact of the 2008-09 financial crisis on the U.S. economy. While the ETF has recovered, almost doubling since the lows in early 2009, it continues to remain weak as the U.S. and world economies struggle, the housing market remains weak, loan defaults continue, and the unemployment remains high. Meanwhile, banks have deleveraged since the crisis, and are more stable, thereby positioning them well for rising profitability once the U.S. economy improves.
In this article, we identify regional and super-regional banks that are being accumulated and those being distributed by legendary or guru fund managers such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, based on our extensive database of the buying and selling activities of over 60+ such managers. The regional banks are defined as those that operate in one region of the U.S., in contrast to money center banks, which operate nationally and globally. Super-regional banks are defined as those regional banks that have a significant presence across multiple states in a geographical region, but are still much smaller in scale and reach that national and global Banks.
Overall, there are almost 400 publicly traded regional and super-regional banks in the U.S., with the Northeast and Southeast regions having over a quarter each due to their large population base, and the Middle West having the smallest proportion at about 15%. They provide banking services such as deposits; loans, leases, mortgages, and credit cards; ATM networks; securities brokerage; investment banking; insurance sales; and mutual funds and pension funds management.
Based on our research, we identified that guru funds are bullish on regional banks, adding a net $470 million to their prior $6.9 billion position in the group, selling $216 million and buying $686 billion worth of stocks in the group. Furthermore, overall they are over-weight in the group by a factor of 1.1; that is taken together guru funds have invested 1.7% of their capital in regional banks compared with the 1.5% weighting of regional banks in the overall market.
The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie.
The following are the regional banks that these guru fund managers are most bullish and bearish about (see Table):
Guru Funds Bullish on US Bancorp (USB): USB is a super-regional financial services holding company, providing various banking and financial services via 3,482 branches in 24 mid-western and western states. Guru funds added a net $347 million to their $2.36 billion prior quarter position. Top guru funds that bought USB during the June quarter included First Eagle Investment Management LLC ($202 million), Yacktman Fund ($68 million) and Viking Global Investors LP ($44 million); and top holders of USB included Berkshire Hathaway Inc. ($1.53 billion), York Capital Management Global Advisors ($257 million), Yacktman Fund ($238 million) and Viking Global Investors LP ($216 million).
Guru Funds Bullish on BB&T Corp. (BBT): BBT operates as a financial holding company for Branch Banking and Trust Company that provides banking and trust services to individuals and businesses via 1,782 offices in 12 states and Washington, D.C. Guru funds added a net $87 million to their $134 million prior quarter position. First Eagle Investment Management LLC was the only top guru fund that bought a significant amount of BBT during the June quarter, adding $87 million to its $126 million prior quarter position in the company.
Guru Funds Bullish on Regions Financial Corp. (RF): RF is a holding company for the Regions Bank that provides a range of commercial, retail, and mortgage banking services in the U.S. via 1,772 offices in 16 states in the South and the Midwest. Guru funds are over-weight RF, and together they hold $608 million worth of stock or 13.4% of the company, far in excess of the 1.7% weighting of guru funds in the regional banking group. The funds with the largest positions in RF include Fairholme Capital Management LLC ($544 million), RS Investment Management ($39 million), and Schneider Capital Management Corp ($22 million).
Guru Funds Neutral on KeyCorp (KEY): KEY operates as a holding company for KeyBank National Association that provides various investment management, retail and commercial banking, consumer finance, and investment banking products to corporate, individual and institutional clients via 1,033 branches in 14 states. Guru funds cut a net $8 million from their $242 million prior quarter position. However, together guru funds are over-weight KEY as they hold $234 million or 3.8% of the outstanding shares. Top holders of KEY Include RS Investment Management ($137 million) and Third Avenue Management LLC ($92 million).
Guru Funds Bearish on Huntington Bancshares Inc. (HBAN): HBAN operates as the holding company for the Huntington National Bank that provides commercial and consumer banking services via 611 offices in OH, MI, PA, IN, WV, KY and FL. Guru funds cut $7 million from their $36 million prior quarter position, and together hold only 0.7% of the company stock. Top sellers included Schneider Capital Management Corp ($4 million) and Balyasny Asset Management LLC ($3 million).
Guru Funds Bullish on Fifth Third Bancorp (FITB): FITB operates as a diversified financial services holding company, engaged in commercial, retail and trust banking, data processing services, investment advisory services and leasing activities via 1,312 centers in 12 states. Guru funds added a net $14 million to their $65 million prior quarter position. Legg Mason Capital Management was the only top guru fund that bought a significant amount of FITB during the June quarter, opening a new $21 million position in the company during the June quarter.
Guru Funds Bearish on SunTrust Banks Inc. (STI): STI operates as the holding company for SunTrust Bank, which provides traditional deposit and credit services as well as trust and investment services via 1,668 offices in AL, AR, FL, GA, MD, MS, NC, SC, TN, VA, WV and D.C. Guru funds cut $24 million from their $59 million prior quarter position, and together hold only 0.4% of the company stock. Top sellers included SAC Capital Advisors LP ($10 million), Kingdon Capital Management LLC ($6 million) and Soros Fund Management LLC ($5 million).
Guru Funds Neutral on M&T Bank Corp. (MTB): MTB operates as a holding company for Manufacturers and Traders Trust Company and M&T Bank National Association, and offers a wide range of commercial banking, trust and investment services via 738 offices in NY, PA, MD, DE, NJ, VA, WV and Washington, D.C. Guru funds are over-weight MTB, and together they hold $423 million worth of stock or 4.6% of the company, far in excess of the 1.7% weighting of guru funds in the regional banking group. However, during the June quarter, together guru funds cut their position by $17 million, buying $1 million and selling $19 million worth of stock. The top seller was Columbia Wagner Asset Management LLC ($13 million), and the top holder was Berkshire Hathaway Inc. ($395 million).
Guru Funds Bearish on PNC Financial Services Group (PNC): PNC operates as a diversified financial services company, offering retail banking, corporate and institutional banking, asset management, and residential mortgage banking services, via 2,470 branches in PA, NJ, DE, Washington D.C., and ten other states. Guru funds cut a net $16 million from their $435 million prior quarter position. Top guru funds that sold PNC during the June quarter included Zweig-DiMenna Associates ($13 million), Schneider Capital Management Corp ($8 million) and Soros Fund Management LLC ($5 million).
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These legendary or guru fund managers number less than one percent of all funds and yet they control almost ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.