We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards The Charles Schwab Corporation (NYSE:SCHW).
Is The Charles Schwab Corporation (NYSE:SCHW) going to take off soon? The best stock pickers were reducing their bets on the stock. The number of long hedge fund positions decreased by 4 recently. The Charles Schwab Corporation (NYSE:SCHW) was in 72 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 76. Our calculations also showed that SCHW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks 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 take a look at the recent hedge fund action surrounding The Charles Schwab Corporation (NYSE:SCHW).
Do Hedge Funds Think SCHW Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 72 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SCHW over the last 24 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Generation Investment Management held the most valuable stake in The Charles Schwab Corporation (NYSE:SCHW), which was worth $1036.2 million at the end of the second quarter. On the second spot was Route One Investment Company which amassed $488 million worth of shares. Diamond Hill Capital, Egerton Capital Limited, and Intermede Investment Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Yost Capital Management allocated the biggest weight to The Charles Schwab Corporation (NYSE:SCHW), around 14.3% of its 13F portfolio. Route One Investment Company is also relatively very bullish on the stock, setting aside 11.74 percent of its 13F equity portfolio to SCHW.
Due to the fact that The Charles Schwab Corporation (NYSE:SCHW) has witnessed bearish sentiment from hedge fund managers, we can see that there exists a select few hedge funds who sold off their positions entirely heading into Q3. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management dropped the largest position of the “upper crust” of funds followed by Insider Monkey, worth an estimated $92.3 million in stock, and Jeffrey Hoffner’s Engle Capital was right behind this move, as the fund cut about $37 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Charles Schwab Corporation (NYSE:SCHW) but similarly valued. These stocks are Lowe’s Companies, Inc. (NYSE:LOW), Rio Tinto Group (NYSE:RIO), HDFC Bank Limited (NYSE:HDB), Intuit Inc. (NASDAQ:INTU), BlackRock, Inc. (NYSE:BLK), American Express Company (NYSE:AXP), and Starbucks Corporation (NASDAQ:SBUX). This group of stocks’ market values are closest to SCHW’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 50.1 hedge funds with bullish positions and the average amount invested in these stocks was $6886 million. That figure was $4852 million in SCHW’s case. Intuit Inc. (NASDAQ:INTU) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks The Charles Schwab Corporation (NYSE:SCHW) is more popular among hedge funds. Our overall hedge fund sentiment score for SCHW is 79.4. 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 24.1% in 2021 through September 20th and still beat the market by 6.9 percentage points. Unfortunately SCHW wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SCHW were disappointed as the stock returned -5.3% since the end of the second quarter (through 9/20) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
Disclosure: None. This article was originally published at Insider Monkey.