Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards JPMorgan Chase & Co. (NYSE:JPM).
Is JPMorgan Chase & Co. (NYSE:JPM) undervalued? Prominent investors are still very bullish on the stock. Our calculations also showed that JPM ranks 10th among the 30 most popular stocks among hedge funds. JPM was in 100 hedge funds’ portfolios at the end of March.
Today there are tons of signals stock traders have at their disposal to evaluate publicly traded companies. A duo of the most underrated signals are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top money managers can trounce the broader indices by a very impressive margin (see the details here).
Let’s go over the new hedge fund action encompassing JPMorgan Chase & Co. (NYSE:JPM).
How are hedge funds trading JPMorgan Chase & Co. (NYSE:JPM)?
At the end of the first quarter, a total of 100 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -1% from one quarter earlier. On the other hand, there were a total of 100 hedge funds with a bullish position in JPM a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of JPMorgan Chase & Co. (NYSE:JPM), with a stake worth $6 billion reported as of the end of March. Trailing Berkshire Hathaway was Fisher Asset Management, which amassed a stake valued at $529.8 million. Greenhaven Associates, Adage Capital Management, and Pzena Investment Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as JPMorgan Chase & Co. (NYSE:JPM) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few money managers that elected to cut their full holdings last quarter. Intriguingly, Robert Pitts’s Steadfast Capital Management dropped the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $124.8 million in stock, and Richard Chilton’s Chilton Investment Company was right behind this move, as the fund cut about $81.3 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as JPMorgan Chase & Co. (NYSE:JPM) but similarly valued. These stocks are Walmart Inc. (NYSE:WMT), Nestle SA (NYSE:NSRGY), Royal Dutch Shell plc (NYSE:RDS), and Bank of America Corporation (NYSE:BAC). This group of stocks’ market caps match JPM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WMT | 57 | 4392529 | -6 |
| NSRGY | 4 | 1617628 | 0 |
| RDS | 33 | 1708020 | 0 |
| BAC | 96 | 29064383 | -3 |
| Average | 47.5 | 9195640 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.5 hedge funds with bullish positions and the average amount invested in these stocks was $9196 million. That figure was $10349 million in JPM’s case. Bank of America Corporation (NYSE:BAC) is the most popular stock in this table. On the other hand Nestle SA (OTCMKTS:NSRGY) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks JPMorgan Chase & Co. (NYSE:JPM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on JPM as the stock returned 6.6% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
