Charles Schwab Corp (NYSE:SCHW) bested Wall Street expectations for the second quarter today, reporting earnings of $353 million, or $0.25 per share, on revenues of $1.57 billion. Analysts were expecting earnings of $0.24 per share on revenues of $1.54 billion, according to Thomson Reuters. In the second quarter of 2014, the financial firm reported earnings of $324 million and revenues of $1.48 billion. The stronger-than-expected performance by Charles Schwab Corp (NYSE:SCHW) comes as a slowdown in trading and low interest rates was offset by increased fees and interest revenue. CEO Walt Bettinger highlighted $37 billion of core new assets, the biggest they have ever had in a second quarter. He also said clients opened 280,000 new brokerage accounts, another second quarter record for the firm, and up by 16% year-over-year. Total client assets, he said, increased by 6% year-over-year to $2.54 trillion. The firm’s share price has grown by 11% year-to-date, beating the S&P 500 index, which has grown by just over 2% in that period. In the past 12 months, the firm’s share price has grown by 23%, and it’s gained 3% today on the earnings news.
Charles Schwab Corp (NYSE:SCHW)’s beat for the second quarter contrasts with sentiment among hedge funds we monitor. Holdings of hedge funds which had long positions in Charles Schwab by the end of the first quarter declined by 4.12% quarter-over-quarter to $2.49 billion. The stock grew by 0.83% in the first quarter and by 7.26% in the second quarter, so it appears the smart money was slightly off on this one. Furthermore, a total of 42 of the hedge funds tracked by Insider Monkey were long in this stock by March 31, down from 44 in the fourth quarter.
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with the knowledge and resources can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock-picking expertise. Thus, a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks, mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 80 percentage points and returning over 139%, while hedge funds themselves have collectively underperformed the market (read the details here).
Another area Insider Monkey follows is insider trades. These transactions can tell people whether certain key insiders of companies are betting on their own stocks. For Charles Schwab, Directors William Haraf and Mark Goldfarb bought 3,000 and 2,567 shares, respectively this year. Haraf bought the shares on April 24 while Goldfarb bought the shares on February 10. Meanwhile, Chief Admin Officer Jay Allen sold 6,004 shares on June 11. Executive Vice President James McCool sold 64,000 shares on June 5. President and CEO Walter Bettinger sold a total of 200,000 shares in transactions on June 3 and 5.
Considering all of teh above, let’s take a peek at the fresh hedge fund activity concerning Charles Schwab Corp.