Do Hedge Funds Love Wells Fargo & Co (WFC)?

A whopping number of 13F filings filed with the U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Wells Fargo & Co (NYSE:WFC).

Hedge fund interest in Wells Fargo & Co (NYSE:WFC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare WFC to other stocks, including JPMorgan Chase & Co. (NYSE:JPM), China Mobile Ltd. (ADR) (NYSE:CHL), and The Procter & Gamble Company (NYSE:PG) to get a better sense of its popularity.

If you’d ask most traders, hedge funds are seen as slow, outdated financial tools of years past. While there are greater than 8000 funds in operation at the moment, Our researchers choose to focus on the upper echelon of this club, around 700 funds. These money managers oversee most of the hedge fund industry’s total capital, and by tracking their highest performing investments, Insider Monkey has spotted a few investment strategies that have historically surpassed the market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points a year for a decade in their back tests.

One of the most famous investors in Wells Fargo is Warren Buffett and on the next page we are going to take a look at his opinion on the company.

In a recent interview on CNBC, Warren Buffett discussed some of his long positions, including Wells Fargo, which represents Berkshire’s largest 13F holding. During the fourth quarter, Berkshire increased its exposure to the bank by 3% to 479.70 million shares, representing 9.8% of Wells Fargo’s outstanding stock. In the interview, Buffett said that he is very fond of the company and considers that CEO John Stumpf has done a great job running Wells Fargo. In fact, Buffett has been bullish on the bank for more than two decades and back in his 1990 letter to investors he also praised the management, saying: “With Wells Fargo, we think we have obtained the best managers in the business, Carl Reichardt and Paul Hazen.”

Moreover, in an interview to Fortune magazine in 2009, Buffett said:

“[…] In the end banking is a very good business unless you do dumb things. You get your money extraordinarily cheap and you don’t have to do dumb things. But periodically banks do it, and they do it as a flock, like international loans in the 80s. You don’t have to be a rocket scientist when your raw material cost is less than 1-1/2%. So I know that you can have a model that works fine and Wells has come closer to doing that right than any other big bank by some margin. They get their money cheaper than anybody else. We’re the low-cost producer at Geico in auto insurance among big companies. And when you’re the low-cost producer – whether it’s copper, or in banking – it’s huge.

Then on top of that, they’re smart on the asset side. They stayed out of most of the big trouble areas. Now, even if you’re getting 20% down payments on houses, if the other guy did enough dumb things, the house prices can fall to where you get hurt some. But they were not out there doing option ARMs and all these crazy things. They’re going to have plenty of credit losses. But they will have, after a couple of quarters of getting Wachovia the way they want it, $40 billion of pre-provision income.

And they do not have all kinds of time bombs around. Wells will lose some money. There’s no question about that. And they’ll lose more than the normal amount of money. Now, if they were getting their money at a percentage point higher, that would be $10 billion of difference there. But they’ve got the secret to both growth, low-cost deposits and a lot of ancillary income coming in from their customer base.”

With all of this in mind, we’re going to check out the new action surrounding Wells Fargo & Co (NYSE:WFC).

What have hedge funds been doing with Wells Fargo & Co (NYSE:WFC)?

Heading into 2016, a total of 85 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged over the quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the biggest position in Wells Fargo & Co (NYSE:WFC), worth close to $26.08 billion, corresponding to 19.8% of its total 13F portfolio. On Berkshire Hathaway’s heels is Fisher Asset Management, led by Ken Fisher, holding a $1.03 billion position; 2% of its 13F portfolio is allocated to the company. Remaining peers that are bullish include Tom Russo’s Gardner Russo & Gardner, Alex Snow’s Lansdowne Partners and Patrick Degorce’s Theleme Partners.

Seeing as Wells Fargo & Co (NYSE:WFC) has experienced a declining sentiment from the smart money, it’s easy to see that there exists a select few money managers who sold off their full holdings by the end of the third quarter. Intriguingly, Israel Englander’s Millennium Management sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $77.6 million in call options., and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund dropped about $61.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Wells Fargo & Co (NYSE:WFC). These stocks are JPMorgan Chase & Co. (NYSE:JPM), China Mobile Ltd. (ADR) (NYSE:CHL), The Procter & Gamble Company (NYSE:PG), and AT&T Inc. (NYSE:T). This group of stocks’ market caps match WFC’s market cap.

As you can see these stocks had an average of 56 hedge funds with bullish positions and the average amount invested in these stocks was $4.98 billion. That figure was $32.56 billion in WFC’s case, although the largest part of it is represented by Buffett’s position. JPMorgan Chase & Co. (NYSE:JPM) is the most popular stock in this table. On the other hand China Mobile Ltd. (ADR) (NYSE:CHL) is the least popular one with only 24 bullish hedge fund positions. Wells Fargo & Co (NYSE:WFC) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard JPM might be a better candidate to consider a long position.