We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Bank of America Corporation (NYSE:BAC).
Bank of America Corporation (NYSE:BAC) has experienced a decrease in activity from the world’s largest hedge funds in recent months. BAC was in 99 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 103 hedge funds in our database with BAC holdings at the end of the previous quarter. Our calculations also showed that BAC ranked 18th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To the average investor there are many methods stock market investors can use to analyze publicly traded companies. Some of the most underrated methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the elite fund managers can outperform the S&P 500 by a significant margin (see the details here).
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the recent hedge fund action encompassing Bank of America Corporation (NYSE:BAC).
Hedge fund activity in Bank of America Corporation (NYSE:BAC)
At the end of the fourth quarter, a total of 99 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 99 hedge funds with a bullish position in BAC a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the most valuable position in Bank of America Corporation (NYSE:BAC). Berkshire Hathaway has a $32.5788 billion position in the stock, comprising 13.5% of its 13F portfolio. On Berkshire Hathaway’s heels is Steadfast Capital Management, managed by Robert Pitts, which holds a $534.7 million position; the fund has 5.9% of its 13F portfolio invested in the stock. Some other peers that are bullish comprise Rajiv Jain’s GQG Partners, Richard S. Pzena’s Pzena Investment Management and Patrick Degorce’s Theleme Partners. In terms of the portfolio weights assigned to each position Ogborne Capital allocated the biggest weight to Bank of America Corporation (NYSE:BAC), around 30.71% of its 13F portfolio. Theleme Partners is also relatively very bullish on the stock, designating 23.57 percent of its 13F equity portfolio to BAC.
Because Bank of America Corporation (NYSE:BAC) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there exists a select few hedge funds that decided to sell off their entire stakes by the end of the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at close to $339.2 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also dropped its stock, about $74.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 4 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Bank of America Corporation (NYSE:BAC) but similarly valued. We will take a look at Berkshire Hathaway Inc. (NYSE:BRK-B), The Procter & Gamble Company (NYSE:PG), Mastercard Incorporated (NYSE:MA), and Exxon Mobil Corporation (NYSE:XOM). All of these stocks’ market caps resemble BAC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BRK-B | 113 | 23616180 | 2 |
| PG | 79 | 10725870 | 5 |
| MA | 125 | 14560784 | 0 |
| XOM | 63 | 2028251 | 8 |
| Average | 95 | 12732771 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 95 hedge funds with bullish positions and the average amount invested in these stocks was $12733 million. That figure was $38412 million in BAC’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand Exxon Mobil Corporation (NYSE:XOM) is the least popular one with only 63 bullish hedge fund positions. Bank of America Corporation (NYSE:BAC) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 1.0% in 2020 through April 20th but beat the market by 11 percentage points. Unfortunately BAC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BAC were disappointed as the stock returned -35.7% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
