Bank of America Corp (NYSE:BAC)’s stock is rallying in morning trading as the financial giant reported more than doubling its quarterly profit for the second quarter of the 2015 fiscal year. Buoyed by a sharp decline in legal fees, down to $175 million in the just-ended quarter from $4.0 billion in the same year-ago quarter, Bank of America Corp posted net income of $5.3 billion, or $0.45 per diluted share, up from $2.3 billion, or $0.19 per share, in the same quarter last year. The firm also reported revenues of $22.3 billion, up by $385 million year-over-year. Wall Street was expecting an EPS of $0.36 on revenues of $21.38 billion, according to Bloomberg. Shares of the banking giant surged as much as 3.74% in pre-market trading and are currently ahead by 2.39% in morning trading.
Looking more closely at the Bank of America Corp (NYSE:BAC) results, there was an increase of $33 billion year-over-year in consumer banking deposits to $547 billion. Residential Mortgage and Home Equity Loan Originations also increased 40% from the year-ago quarter to $19.2 Billion. The bank also issued 1.3 million new credit cards issued, its highest level since the third quarter of 2008. Year-over-year, Merrill Edge Brokerage assets increased 15% to $122 billion, wealth management asset management fees climbed 9% to $2.1 billion and global banking loan balances improved 7% to $307 billion in the second quarter. Generated firmwide investment banking fees were $1.5 billion and sales and trading revenues, excluding net DVA, were $3.3 billion the bank revealed. The balance sheet of Bank of America Corp (NYSE:BAC) is also reported to be robust. Common Equity Tier 1 capital (fully phased-in) surged to a record $148.3 Billion, it said, while global excess liquidity sources was at a record $484 billion, up $53 billion year-over-year.
“Solid core loan growth, higher mortgage originations and the lowest expenses since 2008 contributed to our strongest earnings in several years, as we continued to build broader and deeper relationships with our customers and clients,” said Chief Executive Officer Brian Moynihan, adding that the bank also benefited from the improvement in the U.S. economy. Moynihan also highlighted increasing tangible book value to $15.02 per share on June 30, up from $14.79 per share on March 31 and $14.24 in the same period last year. The CEO added that BAC returned $1.3 billion in capital to investors through buybacks and dividends.
The solid quarter for Bank of America Corp (NYSE:BAC) contrasts with a slightly bearish sentiment by hedge funds in the first quarter, though the stock nonetheless remained one of the most popular among the smart money. By the end of March, a total of 101 of the hedge funds tracked by Insider Monkey were long in this stock, up by seven from the prior quarter. However, holdings of hedge funds long in the stock declined by 17.12% to $5.62 billion by the end of the first quarter, compared to the start of it. This is slightly offset, however, by a 13.97% decline in the stock’s price in the first three months of the year. The stock price rebounded in the second quarter, growing by 10.59%.
Hedge funds and other big money managers tend to have the largest amounts of their capital invested in large and mega-cap stocks like Bank of America Corp because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 135%, beating the broader market by over 80 percentage points through the end of April (see the details).
Insider purchases or sales of shares is another area Insider Monkey looks at, revealing whether insiders are bullish or not on their company’s shares. It should be noted, however, that Bank of America insiders have not made any purchases or sales so far this year.
Taking these factors into consideration, we’re going to review the latest hedge fund activity surrounding Bank of America Corp.
How have hedgies been trading Bank of America Corp (NYSE:BAC)?
When looking at the hedgies followed by Insider Monkey, Bruce Berkowitz‘s Fairholme (FAIRX) had the biggest position in Bank of America Corp (NYSE:BAC), owning 76.75 million shares worth close to $1.18 billion, amounting to 22.1% of its total 13F portfolio. The second-most bullish hedge fund manager was Fisher Asset Management, led by Ken Fisher, holding a $647.5 million position in 42.07 million shares; 1.3% of its 13F portfolio was allocated to the company. Remaining hedge funds that are bullish comprise Richard S. Pzena’s Pzena Investment Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Israel Englander’s Millennium Management.
Ivory Capital (Investment Mgmt), led by Curtis Macnguyen, led the bulls’ herd as it initiated the most valuable position in Bank of America Corp (NYSE:BAC) in the first quarter. Ivory Capital (Investment Mgmt) had $107.4 million invested in the company at the end of the quarter, buying nearly 7.0 million shares. On the flip side, leading the bears’ herd was Donald Yacktman of Yacktman Asset Management, who sold 5.67 million shares of Bank of America worth about $101.35 million.
Due to the solid quarter and continuing support of the smart money, albeit with them slightly bearish to start the year, Bank of America Corp (NYSE:BAC) appears to be a good bet at the moment.
Disclosure: None
