Did Hedge Funds Catch A Break With JPMorgan Chase & Co. (JPM)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding JPMorgan Chase & Co. (NYSE:JPM) and determine whether hedge funds had an edge regarding this stock.

Is JPMorgan Chase & Co. (NYSE:JPM) undervalued? The best stock pickers were becoming less hopeful. The number of long hedge fund bets were trimmed by 7 in recent months. JPMorgan Chase & Co. (NYSE:JPM) was in 101 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 123. Our calculations also showed that JPM ranked 17th among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a gander at the latest hedge fund action regarding JPMorgan Chase & Co. (NYSE:JPM).

Phillip Gross of Adage Capital

Do Hedge Funds Think JPM Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2021, a total of 101 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 118 hedge funds with a bullish position in JPM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in JPMorgan Chase & Co. (NYSE:JPM), which was worth $1163.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $762.8 million worth of shares. Adage Capital Management, AQR Capital Management, and Gardner Russo & Gardner 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 Global Frontier Investments allocated the biggest weight to JPMorgan Chase & Co. (NYSE:JPM), around 29.26% of its 13F portfolio. Adam Capital is also relatively very bullish on the stock, earmarking 17.08 percent of its 13F equity portfolio to JPM.

Because JPMorgan Chase & Co. (NYSE:JPM) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few fund managers that slashed their entire stakes heading into Q4. At the top of the heap, Peter Seuss’s Prana Capital Management cut the biggest stake of the 750 funds followed by Insider Monkey, comprising close to $50.8 million in stock. David Fear’s fund, Thunderbird Partners, also cut its stock, about $46.7 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 7 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as JPMorgan Chase & Co. (NYSE:JPM) but similarly valued. These stocks are Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), Alibaba Group Holding Limited (NYSE:BABA), Walmart Inc. (NYSE:WMT), UnitedHealth Group Inc. (NYSE:UNH), Bank of America Corporation (NYSE:BAC), and The Home Depot, Inc. (NYSE:HD). This group of stocks’ market caps resemble JPM’s market cap.

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As you can see these stocks had an average of 91.7 hedge funds with bullish positions and the average amount invested in these stocks was $16250 million. That figure was $5635 million in JPM’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand The Home Depot, Inc. (NYSE:HD) is the least popular one with only 58 bullish hedge fund positions. JPMorgan Chase & Co. (NYSE:JPM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JPM is 63.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, JPM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on JPM were disappointed as the stock returned -8.1% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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