“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Wells Fargo & Co (NYSE:WFC).
Is Wells Fargo & Co (NYSE:WFC) the right investment to pursue these days? Hedge funds are selling. The number of bullish hedge fund bets went down by 2 recently. Nevertheless WFC was still the 23rd most popular stock among hedge funds at the end of the second quarter (see the list of 25 most popular stocks among hedge funds), though there are other financial stocks ranking higher than WFC.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s check out the fresh hedge fund action encompassing Wells Fargo & Co (NYSE:WFC).
What have hedge funds been doing with Wells Fargo & Co (NYSE:WFC)?
At the end of the third quarter, a total of 73 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards WFC over the last 6 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in Wells Fargo & Co (NYSE:WFC), which was worth $25 billions at the end of the second quarter. On the second spot was Eagle Capital Management which amassed $1133.5 millions worth of shares. Moreover, Theleme Partners, Magnolia Capital Fund, and Soapstone Capital were also bullish on Wells Fargo & Co (NYSE:WFC), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Wells Fargo & Co (NYSE:WFC) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedge funds that slashed their entire stakes by the end of the second quarter. It’s worth mentioning that Andreas Halvorsen’s Viking Global cut the biggest position of all the hedgies followed by Insider Monkey, comprising about $672.6 million in stock, and Jim Simons’s Renaissance Technologies was right behind this move, as the fund sold off about $176.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Wells Fargo & Co (NYSE:WFC) but similarly valued. These stocks are Wal-Mart Stores, Inc. (NYSE:WMT), Chevron Corporation (NYSE:CVX), Nestle SA Reg Shs. Ser. B Spons (ADR) (OTCMKTS:NSRGY), and UnitedHealth Group Inc. (NYSE:UNH). This group of stocks’ market values are similar to WFC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WMT | 52 | 4399105 | 4 |
| CVX | 50 | 2399992 | 5 |
| NSRGY | 5 | 1483813 | 0 |
| UNH | 68 | 6526083 | 1 |
As you can see these stocks had an average of 43.75 hedge funds with bullish positions and the average amount invested in these stocks was $3702 million. That figure was $32.2 billion in WFC’s case. UnitedHealth Group Inc. (NYSE:UNH) is the most popular stock in this table. On the other hand Nestle SA Reg Shs. Ser. B Spons (ADR) (OTCMKTS:NSRGY) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Wells Fargo & Co (NYSE:WFC) is more popular among hedge funds and legendary investors such as Warren Buffett. However, we don’t think investors should follow Warren Buffett into WFC. We just finished a detailed quantitative analysis of Warren Buffett’s historical stock picks and shared the results in a free report (you can download it on our site). According to our analysis Warren Buffett’s large-cap stock picks underperformed the market over the last 4 years by a significant margin. His average returns over the last 18 years don’t look very appetizing either.
Disclosure: None. This article was originally published at Insider Monkey.
