Do Hedge Funds Love Bank of America Corporation (BAC)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Bank of America Corporation (NYSE:BAC) changed recently.

Bank of America Corporation (NYSE:BAC) was in 88 hedge funds’ portfolios at the end of September. The all time high for this statistics is 139. BAC has seen a decrease in support from the world’s most elite money managers recently. There were 91 hedge funds in our database with BAC positions at the end of the second quarter. Our calculations also showed that BAC ranked 27th among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ricky Sandler of Eminence Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding Bank of America Corporation (NYSE:BAC).

How are hedge funds trading Bank of America Corporation (NYSE:BAC)?

At the end of the third quarter, a total of 88 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards BAC over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the most valuable position in Bank of America Corporation (NYSE:BAC). Berkshire Hathaway has a $24.3333 billion position in the stock, comprising 10.6% of its 13F portfolio. On Berkshire Hathaway’s heels is Citadel Investment Group, managed by Ken Griffin, which holds a $373 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish consist of Richard S. Pzena’s Pzena Investment Management, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Aquamarine Capital Management allocated the biggest weight to Bank of America Corporation (NYSE:BAC), around 12.2% of its 13F portfolio. Berkshire Hathaway is also relatively very bullish on the stock, designating 10.63 percent of its 13F equity portfolio to BAC.

Seeing as Bank of America Corporation (NYSE:BAC) has experienced a decline in interest from the smart money, we can see that there lies a certain “tier” of hedgies who were dropping their full holdings heading into Q4. It’s worth mentioning that Robert Pitts’s Steadfast Capital Management dropped the largest position of the 750 funds watched by Insider Monkey, worth about $199.2 million in stock, and George Soros’s Soros Fund Management was right behind this move, as the fund cut about $28.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Bank of America Corporation (NYSE:BAC) but similarly valued. These stocks are Pfizer Inc. (NYSE:PFE), AT&T Inc. (NYSE:T), Novartis AG (NYSE:NVS), NIKE, Inc. (NYSE:NKE), Abbott Laboratories (NYSE:ABT), PepsiCo, Inc. (NASDAQ:PEP), and SAP SE (NYSE:SAP). 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
PFE 66 2128534 0
T 51 1158558 -6
NVS 25 1686255 4
NKE 75 4218416 4
ABT 62 4285555 -5
PEP 52 2937459 -1
SAP 16 1806430 0
Average 49.6 2603030 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 49.6 hedge funds with bullish positions and the average amount invested in these stocks was $2603 million. That figure was $26637 million in BAC’s case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Bank of America Corporation (NYSE:BAC) is more popular among hedge funds. Our overall hedge fund sentiment score for BAC is 71. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 28.1% in 2020 through November 23rd but still managed to beat the market by 15.4 percentage points. Hedge funds were also right about betting on BAC as the stock returned 13.7% since the end of September (through 11/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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