Were Hedge Funds Right About JPMorgan Chase & Co. (JPM)?

In this article we will take a look at whether hedge funds think JPMorgan Chase & Co. (NYSE:JPM) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is JPMorgan Chase & Co. (NYSE:JPM) a good investment now? The smart money was reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 3 in recent months. JPMorgan Chase & Co. (NYSE:JPM) was in 108 hedge funds’ portfolios at the end of June. The all time high for this statistic is 123. Our calculations also showed that JPM ranked 16th among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 111 hedge funds in our database with JPM positions at the end of the first quarter.

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 79 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.

Phillip Gross of Adage Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s check out the recent hedge fund action regarding JPMorgan Chase & Co. (NYSE:JPM).

Do Hedge Funds Think JPM Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 108 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in JPM over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the largest position in JPMorgan Chase & Co. (NYSE:JPM). Fisher Asset Management has a $1.0739 billion position in the stock, comprising 0.7% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $869.8 million call position; 0.2% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism contain Phill Gross and Robert Atchinson’s Adage Capital Management, Tom Russo’s Gardner Russo & Gardner and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Global Frontier Investments allocated the biggest weight to JPMorgan Chase & Co. (NYSE:JPM), around 28.78% of its 13F portfolio. Brave Warrior Capital is also relatively very bullish on the stock, earmarking 9.86 percent of its 13F equity portfolio to JPM.

Since JPMorgan Chase & Co. (NYSE:JPM) has faced bearish sentiment from hedge fund managers, we can see that there exists a select few hedgies that slashed their full holdings last quarter. It’s worth mentioning that Marcio Appel’s Adam Capital cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth close to $171.1 million in stock. Ric Dillon’s fund, Diamond Hill Capital, also said goodbye to its stock, about $152.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as JPMorgan Chase & Co. (NYSE:JPM) but similarly valued. We will take a look at Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), UnitedHealth Group Inc. (NYSE:UNH), Mastercard Incorporated (NYSE:MA), Bank of America Corporation (NYSE:BAC), Paypal Holdings Inc (NASDAQ:PYPL), and The Home Depot, Inc. (NYSE:HD). This group of stocks’ market caps match JPM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 102 hedge funds with bullish positions and the average amount invested in these stocks was $16057 million. That figure was $4928 million in JPM’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand The Home Depot, Inc. (NYSE:HD) is the least popular one with only 64 bullish hedge fund positions. JPMorgan Chase & Co. (NYSE:JPM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JPM is 65.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on JPM as the stock returned 10.5% since the end of Q2 (through 10/29) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.