In this article we will check out the progression of hedge fund sentiment towards Wells Fargo & Company (NYSE:WFC) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Wells Fargo & Company (NYSE:WFC) a good stock to buy now? Money managers are taking a bearish view. The number of bullish hedge fund bets decreased by 3 in recent months. Our calculations also showed that WFC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Boykin Curry of Eagle Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the fresh hedge fund action surrounding Wells Fargo & Company (NYSE:WFC).
How have hedgies been trading Wells Fargo & Company (NYSE:WFC)?
At Q1’s end, a total of 76 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WFC over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the largest position in Wells Fargo & Company (NYSE:WFC). Berkshire Hathaway has a $9.2762 billion position in the stock, comprising 5.3% of its 13F portfolio. On Berkshire Hathaway’s heels is Eagle Capital Management, managed by Boykin Curry, which holds a $830.7 million position; 3.4% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Patrick Degorce’s Theleme Partners and Richard S. Pzena’s Pzena Investment Management. In terms of the portfolio weights assigned to each position Magnolia Capital Fund allocated the biggest weight to Wells Fargo & Company (NYSE:WFC), around 28.75% of its 13F portfolio. Theleme Partners is also relatively very bullish on the stock, earmarking 22.77 percent of its 13F equity portfolio to WFC.
Judging by the fact that Wells Fargo & Company (NYSE:WFC) has experienced a decline in interest from the smart money, it’s easy to see that there exists a select few money managers who sold off their positions entirely in the third quarter. Intriguingly, Robert M. P. Luciano’s VGI Partners sold off the largest position of all the hedgies monitored by Insider Monkey, comprising about $89.1 million in stock. Ray Dalio’s fund, Bridgewater Associates, also said goodbye to its stock, about $47.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Wells Fargo & Company (NYSE:WFC). These stocks are AstraZeneca plc (NYSE:AZN), HSBC Holdings plc (NYSE:HSBC), Philip Morris International Inc. (NYSE:PM), and Thermo Fisher Scientific Inc. (NYSE:TMO). This group of stocks’ market caps match WFC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AZN | 26 | 1772166 | -6 |
| HSBC | 14 | 378656 | -4 |
| PM | 48 | 2541197 | -9 |
| TMO | 80 | 3187947 | 7 |
| Average | 42 | 1969992 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $1970 million. That figure was $12935 million in WFC’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 14 bullish hedge fund positions. Wells Fargo & Company (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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but beat the market by 15.6 percentage points. Unfortunately WFC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WFC were disappointed as the stock returned -14.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
