The financial sector has exhibited lackluster performance of late, being down by about 6.23% over the last 52 weeks. This might ring alarm bells for novice investors, but those more familiar with the art of investing should see this as a buying opportunity. With that said, it is important to recognize the forces weighing on the sector. Firstly, falling oil prices have raised eyebrows over the high yield debt of energy companies that many banks are holding on their balance sheets. Secondly, global growth concerns, particularly concerning China, have turned some investors bearish, as they believe that the Fed might not be able to deliver the further rate hikes that it has hinted at. Instead, the Fed could even be forced to cut the federal funds rate, which would hurt the already thin net interest margins of lending institutions. Against this backdrop, let’s look at the top companies in the sector that the professional money managers tracked by Insider Monkey are betting on to weather the storm.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).
#5 Wells Fargo & Co (NYSE:WFC)
– Investors with Long Positions (as of December 31): 85
– Aggregate Value of Investors’ Holdings (as of December 31): $32.56 Billion
While the number of hedge funds holding Wells Fargo & Co (NYSE:WFC) at the end of the fourth quarter remained unchanged from the end of September, the aggregate value of their investments saw an increase of 5.5%, largely in-line with the 5.68% appreciation in the company’s stock price during the period. It’s been a different story this year however, as the stock price of the commercial bank with the largest market capitalization in the world has fallen by 13.7%. While the company successfully rode the wave of the U.S housing recovery over the past couple of years, owing to its leadership role in the mortgage industry, it still continues to be the focus of investigations by federal and state government agencies regarding mortgage-related practices. Legendary investor Warren Buffett of Berkshire Hathaway is the largest stockholder of Wells Fargo & Co (NYSE:WFC), holding more than 479.7 million shares valued at $26.08 billion.
#4 JPMorgan Chase & Co. (NYSE:JPM)
– Investors with Long Positions (as of December 31): 100
– Aggregate Value of Investors’ Holdings (as of December 31): $7.58 Billion
Hedge fund ownership of JPMorgan Chase & Co. (NYSE:JPM) among the investors in our system amounted to 3.1% of the company’s float at the end of the fourth quarter, while the total number of investors who were long remained unchanged. In order to counter the downswing in oil prices, JPMorgan Chase & Co. (NYSE:JPM) recently increased its reserves against potential defaults of energy companies by 60%. The investment bank recently disclosed that it was at the center of a government probe into conflicts of interest over the sale and use of in-house investment products, which according to people familiar with the matter, relate to the bank’s handling of investments inside trusts that benefited churches. Alex Snow‘s Lansdowne Partners hiked its stake in JPMorgan Chase & Co. (NYSE:JPM) by 7% to 20.16 million shares valued at $1.33 billion during the final three months of 2015.