Once per quarter hedge funds disclose their long stock positions in major U.S. publicly traded companies. Historically, the most popular small-cap stocks among hedge funds have outperformed the market by an average of 18 percentage points per year. Following this approach –imitating hedge fund picks- since August 2012, our selected stocks returned more than 69% in the period.
The most popular large-cap stock picks among hedge funds also tend to outperform the market. However, margins are substantially smaller. One way or another, tracking hedge fund picks will help you get above average returns while keeping your choices relatively safe.
In a previous article, we presented five technology stocks that hedge funds love. On this occasion, we will take a look at the five favorite financial stocks among “hedgies.”
Over 2013´s third quarter, hedge funds were quite active in the financial segment. Nonetheless, the top 5 picks amongst them remain the same than in the previous periods: American International Group Inc (NYSE:AIG); Citigroup Inc (NYSE:C); JPMorgan Chase & Co. (NYSE:JPM); Bank of America Corp (NYSE:BAC); and Visa Inc (NYSE:V).
Although positions have changed and not all of these companies occupy the same post in our ranking as they did last quarter, this is not the case for American International Group Inc (NYSE:AIG). Despite the fact that 8 funds sold out their stakes during Q3, the insurer maintains its front-runner position with 131 major funds betting on it. Among them we can count Bruce Berkowitz´s Fairholme (Fairx), with holding worth more than $4 billion, William B. Gray’s Orbis Investment Management (approximately $900 million in shares), and D. E. Shaw –roughly $500 million.
The second place in our list, held by Citigroup, also remains unaltered in relation to the previous quarter. This banking company with a market cap of more than $157 billion is also among the 5 most popular stocks among hedge funds. Although six funds abandoned the firm during the third quarter others -like Ken Fisher– incremented their bets on it. Fisher’s fund roughly doubled its stake in Citigroup Inc (NYSE:C) and now holds almost 11 million shares, worth more than $500 million.
JPMorgan Chase & Co. (NYSE:JPM) was the best performer in our top 5: nine hedge funds started positions during Q3. At the end of the quarter, 104 funds out of those we track disclosed long positions in the company, including Paul Ruddock and Steve Heinz’s Lansdowne Partners, with a stake of almost $1 billion; Fisher Asset Management, holding about $680 million in shares; and Phill Gross and Robert Atchinson’s Adage Capital Management, which owns about 6.4 million shares, worth about $330 million.
Besides JPMorgan Chase, hedge fund bullishness rose considerably regarding Bank of America Corp (NYSE:BAC). “Hedgies” betting on this bank ascended from 85 at the end of the second quarter, to 91 when the third quarter ended. In addition, Richard S. Pzena‘s Pzena Investment Management, increased its position and now owns about 25 million shares (approx. $350 million). Fisher Asset Management also raised its bets, reaching a position worth more than half a billion dollars. The most bullish of them all (Berkowitz´s Fairholme), however, slightly decreased its stake to $1.3 billion. Nonetheless, this holding makes up for more than 16% of its portfolio.
Coming in fifth, is Visa Inc (NYSE:V), that lost the fourth place to Bank of America during the last quarter. Activity was quite low during the third quarter: 90 of the funds that we track revealed long positions in the credit services giant, as opposed to 91 at the end of the previous quarter. The most bullish of them is Ken Fisher, whose fund holds about 3.45 million shares -slightly more than the previous quarter- worth more than $650 million.