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Bank of America Corp (BAC), JPMorgan Chase, Wells Fargo, Citigroup: Quants Pick The Best Financial Stock

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What is the best financial stock to buy right now? With the Fed recently raising rates for the second time, it may be a good idea to check out some companies like Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc (NYSE:C) from the sector and potentially adding it to one’s portfolio.

We track over 700 hedge funds and other institutional investors and analyze every quarter the general sentiment among them towards thousands of stock. One particularly interesting group of investors that we follow are quantitative hedge funds, many of which are some of the largest and best-performing funds on Wall Street. We calculated the returns of some of these funds using data from their publicly available 13F filings, and determined that most quant funds managed to outperform the market even though in some instances their picks were less risky than the broader market.

For example, the top five stock picks of Jim Simons’ Renaissance Technologies posted an equal-weighted average gain of 1.17% per month between 2008 and 2012, outperforming the S&P 500 which inched up by 0.29% per month during the same period. When we adjusted returns for known factor returns like size, value, and momentum RenTech’s alpha turned out to be 103 basis points per month. This means this quant hedge fund’s top picks were able to beat the market by almost a percentage point a month by investing in a portfolio of less risky stocks.

Having said that, let’s take a look at what quants think about Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc (NYSE:C). While there are many funds that use a quantitative strategy, we have narrowed down our selection to only five funds, which generated the strongest returns over the years in our backtests.

In this article, we will see how Cliff Asness’ AQR Capital Management, David E. Shaw’s D. E. Shaw & Co., Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel Two Sigma Advisors, and Jim Simons’ Renaissance Technologies, traded the companies in question during the third quarter and will try to identify two of them that we think deserve the most attention.

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Let’s start with Bank of America Corp (NYSE:BAC), in which all five quants held shares at the end of September. The largest stake is held by Citadel Investment Group, which boosted its position by 115% during the third quarter, having amassed 11.54 million shares. On the other hand, the fund with the second-largest stake, D. E. Shaw & Co., cut its position by 61% to 11.54 million shares. Renaissance Technologies was the only fund that initiated a stake in Bank of America Corp (NYSE:BAC) during the third quarter and held 7.68 million shares at the end of September. The other two funds, Two Sigma Advisors and AQR Capital Management, held more modest positions, with the former increasing its stake by 48% to 1.66 million shares, while the latter trimmed the holding by 14%to 1.47 million shares. Overall, among the funds in our database Bank of America Corp (NYSE:BAC) is also the most popular stock in this list, with 112 of them holding shares at the end of September, up by 10 funds over the quarter.

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