Will the new coronavirus cause a recession in US in the next 6 months? We put he probability at 75%. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Wells Fargo & Company (NYSE:WFC).
Is Wells Fargo & Company (NYSE:WFC) a buy here? Money managers are in a bullish mood. The number of bullish hedge fund bets improved by 12 lately. Our calculations also showed that WFC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by 41 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 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.
Warren Buffett of Berkshire Hathaway
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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s take a look at the latest hedge fund action surrounding Wells Fargo & Company (NYSE:WFC).
What does smart money think about Wells Fargo & Company (NYSE:WFC)?
Heading into the first quarter of 2020, a total of 79 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the third quarter of 2019. By comparison, 77 hedge funds held shares or bullish call options in WFC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Berkshire Hathaway, managed by Warren Buffett, holds the number one position in Wells Fargo & Company (NYSE:WFC). Berkshire Hathaway has a $17.3889 billion position in the stock, comprising 7.2% of its 13F portfolio. On Berkshire Hathaway’s heels is Boykin Curry of Eagle Capital Management, with a $1.4792 billion position; the fund has 4.7% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism consist of Tom Russo’s Gardner Russo & Gardner, Patrick Degorce’s Theleme Partners and Richard S. Pzena’s Pzena Investment Management. In terms of the portfolio weights assigned to each position Theleme Partners allocated the biggest weight to Wells Fargo & Company (NYSE:WFC), around 34.81% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, designating 34.27 percent of its 13F equity portfolio to WFC.
Consequently, some big names have jumped into Wells Fargo & Company (NYSE:WFC) headfirst. Bridgewater Associates, managed by Ray Dalio, established the largest position in Wells Fargo & Company (NYSE:WFC). Bridgewater Associates had $47.5 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also initiated a $46.7 million position during the quarter. The other funds with brand new WFC positions are Ravi Chopra’s Azora Capital, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Dan Juran’s Rings Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Wells Fargo & Company (NYSE:WFC) but similarly valued. We will take a look at Pfizer Inc. (NYSE:PFE), Novartis AG (NYSE:NVS), Comcast Corporation (NASDAQ:CMCSA), and Cisco Systems, Inc. (NASDAQ:CSCO). All of these stocks’ market caps resemble WFC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PFE | 62 | 4838507 | 4 |
| NVS | 30 | 2054513 | 2 |
| CMCSA | 87 | 6747748 | -3 |
| CSCO | 68 | 4029813 | 3 |
| Average | 61.75 | 4417645 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 61.75 hedge funds with bullish positions and the average amount invested in these stocks was $4418 million. That figure was $23879 million in WFC’s case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 30 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately WFC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WFC were disappointed as the stock returned -20.6% 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 20 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.
