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Bank of America Corp (BAC) Cements Status as Hedge Funds’ Favorite Bank Stock

At Insider Monkey, we pore over the filings of more than 700 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Bank of America Corp (NYSE:BAC) makes for a good investment right now.

There was a decline in the number of hedge fund shareholders of Bank of America Corp (NYSE:BAC) for the 6th time in the past 7 quarters during Q3. Nonetheless, the investment bank remained the most popular banking stock among hedge funds with 102 funds owning BAC shares on September 30, which was a 6% decrease quarter-over-quarter. Bank of America also held on to its top 10 ranking among the 30 Most Popular Stocks Among Hedge Funds, though it’s perilously close to losing that status.

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 flagship best performing hedge funds strategy returned 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Warren Buffet, is Warren Buffet success personified, Suzanne Woolley

Warren Buffett of Berkshire Hathaway

How have hedgies been trading Bank of America Corp (NYSE:BAC)?

At Q3’s end, a total of 102 of the hedge funds tracked by Insider Monkey were bullish on this stock, a dip of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BAC over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

BAC_nov2018

The largest stake in Bank of America Corp (NYSE:BAC) was held by Berkshire Hathaway, which reported holding $25.84 billion worth of stock at the end of September. It was followed by Lansdowne Partners with an $812.4 million position. Other investors bullish on the company included Pzena Investment Management, Theleme Partners, and First Pacific Advisors LLC.

Since Bank of America Corp (NYSE:BAC) has witnessed falling interest from hedge fund managers, we can see that there is a sect of hedgies that decided to sell off their full holdings in the third quarter. Intriguingly, Matthew Knauer and Mina Faltas’ Nokota Management sold off the largest position of the 700 funds followed by Insider Monkey, valued at about $121.2 million in call options. Mike Masters’ fund, Masters Capital Management, also dropped its call options, about $56.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 7 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Bank of America Corp (NYSE:BAC) but similarly valued. We will take a look at Walmart Inc. (NYSE:WMT), Pfizer Inc. (NYSE:PFE), UnitedHealth Group Inc. (NYSE:UNH), and Nestlé S.A. (OTCMKTS:NSRGY). This group of stocks’ market caps are closest to BAC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WMT 60 4719208 8
PFE 58 4303936 10
UNH 71 6422611 3
NSRGY 5 1575298 0

As you can see these stocks had an average of 49 hedge funds with bullish positions and the average amount invested in these stocks was $4.26 billion. That figure was $32.05 billion in BAC’s case. UnitedHealth Group Inc. (NYSE:UNH) is the most popular stock in this table. On the other hand Nestlé S.A. (OTCMKTS:NSRGY) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Bank of America Corp (NYSE:BAC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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