Charles Schwab Corp (NYSE:SCHW) investors should be aware of a decrease in enthusiasm from smart money lately.
To most market participants, hedge funds are assumed to be underperforming, old investment tools of the past. While there are over 8000 funds with their doors open at present, we hone in on the crème de la crème of this club, about 450 funds. It is widely believed that this group has its hands on the majority of the smart money’s total asset base, and by watching their top picks, we have found a few investment strategies that have historically beaten the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 25 percentage points in 6.5 month (check out a sample of our picks).
Just as beneficial, optimistic insider trading activity is another way to parse down the world of equities. Just as you’d expect, there are many stimuli for an executive to downsize shares of his or her company, but only one, very obvious reason why they would buy. Many empirical studies have demonstrated the impressive potential of this strategy if you understand where to look (learn more here).
Consequently, it’s important to take a peek at the latest action surrounding Charles Schwab Corp (NYSE:SCHW).
Hedge fund activity in Charles Schwab Corp (NYSE:SCHW)
Heading into 2013, a total of 27 of the hedge funds we track were bullish in this stock, a change of -16% from one quarter earlier. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably.
When looking at the hedgies we track, John H. Scully’s SPO Advisory Corp had the largest position in Charles Schwab Corp (NYSE:SCHW), worth close to $691 million, comprising 10.9% of its total 13F portfolio. Sitting at the No. 2 spot is Diamond Hill Capital, managed by Ric Dillon, which held a $125 million position; 0.5% of its 13F portfolio is allocated to the company. Remaining hedge funds that are bullish include Glenn Greenberg’s Brave Warrior Capital, Lou Simpson’s SQ Advisors and Christopher R. Hansen’s Valiant Capital.
Because Charles Schwab Corp (NYSE:SCHW) has experienced a declination in interest from the smart money, it’s easy to see that there exists a select few hedge funds who were dropping their full holdings last quarter. Intriguingly, Richard Schimel’s Diamondback Capital said goodbye to the largest investment of the “upper crust” of funds we track, totaling an estimated $17 million in stock.. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also sold off its stock, about $4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 5 funds last quarter.
How have insiders been trading Charles Schwab Corp (NYSE:SCHW)?
Insider purchases made by high-level executives is most useful when the company we’re looking at has experienced transactions within the past 180 days. Over the latest half-year time frame, Charles Schwab Corp (NYSE:SCHW) has seen zero unique insiders buying, and 5 insider sales (see the details of insider trades here).
Let’s go over hedge fund and insider activity in other stocks similar to Charles Schwab Corp (NYSE:SCHW). Some of these stocks are LPL Financial Holdings Inc (NASDAQ:LPLA), TD Ameritrade Holding Corp. (NYSE:AMTD), and Morgan Stanley (NYSE:MS).
| Company Name | # of Hedge Funds | # of Insiders Buying | # of Insiders Selling |
| LPL Financial Holdings Inc (NASDAQ:LPLA) | 12 | 0 | 4 |
| TD Ameritrade Holding Corp. (NYSE:AMTD) | 13 | 2 | 6 |
| Morgan Stanley (NYSE:MS) | 49 | 0 | 4 |
| CME Group Inc (NASDAQ:CME) | 31 | 0 | 8 |
With the returns demonstrated by our research, everyday investors must always monitor hedge fund and insider trading sentiment, and Charles Schwab Corp (NYSE:SCHW) applies perfectly to this mantra.
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Insider Monkey’s small-cap strategy returned 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.
