Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
The Charles Schwab Corporation (NYSE:SCHW) investors should pay attention to an increase in hedge fund sentiment in recent months. Our calculations also showed that schw isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We’re going to take a glance at the fresh hedge fund action regarding The Charles Schwab Corporation (NYSE:SCHW).
What have hedge funds been doing with The Charles Schwab Corporation (NYSE:SCHW)?
At Q1’s end, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in SCHW over the last 15 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, David Blood and Al Gore’s Generation Investment Management has the most valuable position in The Charles Schwab Corporation (NYSE:SCHW), worth close to $894.7 million, corresponding to 6.5% of its total 13F portfolio. The second most bullish fund manager is Route One Investment Company, led by William Duhamel, holding a $474.4 million position; 11.3% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish consist of Patrick Degorce’s Theleme Partners, Glenn Greenberg’s Brave Warrior Capital and Ricky Sandler’s Eminence Capital.
Consequently, key hedge funds have jumped into The Charles Schwab Corporation (NYSE:SCHW) headfirst. Renaissance Technologies, managed by Jim Simons, created the biggest position in The Charles Schwab Corporation (NYSE:SCHW). Renaissance Technologies had $122.1 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $15.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Ray Dalio’s Bridgewater Associates, Paul Tudor Jones’s Tudor Investment Corp, and D. E. Shaw’s D E Shaw.
Let’s also examine hedge fund activity in other stocks similar to The Charles Schwab Corporation (NYSE:SCHW). These stocks are Simon Property Group, Inc (NYSE:SPG), The PNC Financial Services Group, Inc. (NYSE:PNC), EOG Resources Inc (NYSE:EOG), and The Southern Company (NYSE:SO). This group of stocks’ market caps resemble SCHW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPG | 28 | 897496 | 2 |
| PNC | 40 | 2516367 | 2 |
| EOG | 39 | 1042748 | 2 |
| SO | 19 | 846857 | -1 |
| Average | 31.5 | 1325867 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1326 million. That figure was $3140 million in SCHW’s case. The PNC Financial Services Group, Inc. (NYSE:PNC) is the most popular stock in this table. On the other hand The Southern Company (NYSE:SO) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks The Charles Schwab Corporation (NYSE:SCHW) 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 SCHW, though not to the same extent, as the stock returned -0.1% during the same period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
