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.
On the other hand, Wells Fargo & Co (NYSE:WFC) saw one of the five quants unloading its entire stake during the third quarter. That fund was Renaissance Technologies, which sold 36,900 shares it had held at the end of June. The largest stake at the end of September was held by D. E. Shaw & Co., which reported ownership of 6.62 million shares, up by 27% over the quarter, followed by AQR Capital Management, which increased its position by 13% to 6.52 million shares.
A slightly smaller position was disclosed by Two Sigma Advisors, which amassed 5.15 million shares, up by 9% over the quarter. Finally, Citadel Investment Group held the smallest stake, which was reduced by 26% to 1.81 million shares between July and September. Among the funds we track, Wells Fargo & Co (NYSE:WFC) also registered an increase in popularity during the third quarter, as the number of funds bullish on the stock jumped to 104 from 88.
In JPMorgan Chase & Co. (NYSE:JPM), Renaissance Technologies also sold out its stake during the third quarter, having previously amassed 602,286 shares. The only quant in the list that reduced its exposure to the stock is Citadel Investment Group, which held 121,436 shares at the end of September, down by 59% over the quarter.
On the other hand, D. E. Shaw & Co.’s stake in JPMorgan was boosted by almost 400% to 370,946 shares, while Tw0 Sigma Advisors more than doubled its position to 720,180 shares. However, the largest stake in JPMorgan Chase & Co. (NYSE:JPM) was disclosed by AQR Capital Management, which raised its holding by 11% to 4.13 million shares during the third quarter. Moreover, JPMorgan Chase & Co. (NYSE:JPM) saw 98 funds from our database holding shares heading into the fourth quarter.
Finally, Citigroup Inc (NYSE:C) is the least popular financial stock among the quants we have selected for this article, mainly because neither Two Sigma Advisors, nor Renaissance Technologies, held its shares in the third quarter. RenTech unloaded its entire stake during the fourth quarter of 2015, while Two Sigma Advisors closed its position in the second quarter of 2016. Moreover, among the remaining three funds, Citadel Investment Group sold all of its shares between July and September. So, we are left with just two funds, AQR Capital Management and D. E. Shaw & Co. that had Citigroup Inc (NYSE:C) in their equity portfolios heading into the fourth quarter. However, both funds cut their positions during the last quarter. D. E. Shaw reduced its stake by 40% to 4.61 million shares and AQR Capital Management disposed of 20% of its position and reported 2.37 million shares in its latest 13F filing. Among the funds in our database, Citigroup Inc (NYSE:C) is also the least popular stock in this list, although it still registered 97 funds with bullish positions at the end of September.
To sum up, we need to select two stocks from the list that we think should be more closer looked at. It’s easy to see that we can eliminate Citigroup, and among the remaining three stocks, Bank of America Corp (NYSE:BAC) and Wells Fargo & Co (NYSE:WFC) deserve more attention, based on the sentiment of both just the five quants we have selected and all the funds in our database. However, our conclusion is subjective and more analysis is required before adding either one of these stocks to one’s portfolio.
Disclosure: none
