Many investors like Carl Icahn and Stan Druckenmiller have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating quarterly earnings estimates. In the third quarter, many investors lost money due to unpredictable events such as the concerns over Valeant’s drug pricing policy that led to an overall drop among pharma stocks. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance, and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment towards JPMorgan Chase & Co. (NYSE:JPM) has changed recently.
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Is JPMorgan Chase & Co. (NYSE:JPM) a good stock to buy now? The best stock pickers are in a bearish mood. The number of bullish hedge fund positions stayed the same, which is a slightly negative development in our experience. JPM was in 100 hedge funds’ portfolio at the end of September. There were 100 hedge funds in our database with JPM positions at the end of the previous quarter.
In the financial world there are tons of methods market participants put to use to appraise their stock investments. Two of the most innovative methods are hedge fund and insider trading moves. Experts at Insider Monkey, a website specializing in hedge funds, have shown that, historically, those who follow the best picks of the top investment managers can outclass the market by a healthy margin (see the details here).
Keeping this in mind, we’re going to take a peek at the recent action encompassing JPMorgan Chase & Co. (NYSE:JPM).
What have hedge funds been doing with JPMorgan Chase & Co. (NYSE:JPM)?
Heading into Q4, a total of 100 of the hedge funds tracked by Insider Monkey were bullish in this stock, unchanged from the second quarter. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully.
Ken Fisher‘s Fisher Asset Management has the largest position in JPMorgan Chase & Co. (NYSE:JPM), worth close to $842.7 million, corresponding to 1.8% of its total 13F portfolio. On Fisher Asset Management’s heels is Eagle Capital Management, led by Boykin Curry, holding a $694.9 million position; the fund has 3% of its 13F portfolio invested in the stock. Other hedgies with similar optimism contain Edgar Wachenheim’s Greenhaven Associates, Daniel S. Och’s OZ Management and Richard S. Pzena’s Pzena Investment Management.
Since JPMorgan Chase & Co. (NYSE:JPM) has faced bearish sentiment from the smart money, it’s safe to say that there lies a certain “tier” of fund managers that elected to cut their positions entirely heading into Q4. It’s worth mentioning that Ricky Sandler‘s Eminence Capital dropped the biggest stake of the 700 funds tracked by Insider Monkey, totaling about $168.5 million in call options. Noam Gottesman’s fund, GLG Partners, also dropped its call options, about $67.8 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to JPMorgan Chase & Co. (NYSE:JPM). These stocks are Novartis AG (ADR) (NYSE:NVS), Wal-Mart Stores, Inc. (NYSE:WMT), AT&T Inc. (NYSE:T), and The Procter & Gamble Company (NYSE:PG). This group of stocks’ market valuations are similar to JPM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVS | 29 | 1005423 | -6 |
| WMT | 61 | 7088996 | -4 |
| T | 60 | 3758951 | 11 |
| PG | 58 | 9063165 | 0 |
As we see, most similar stocks also faced indifferent or declining hedge fund sentiment in Q3, and far more investors held JP Morgan in their portfolios than any of those stocks. In fact it ranked as their 13th-most popular stock on September 30. Thus, we believe in this specific case that the unchanged sentiment is not as much of a bearish signal and that there is a lot to like about the investment bank’s stock.
Disclosure: None
