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Hedge Funds Started Dumping Bank of America (BAC) Even Before Coronavirus

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details.). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Bank of America Corporation (NYSE:BAC).

Is Bank of America Corporation (NYSE:BAC) undervalued? Money managers are selling. The number of long hedge fund bets dropped by 4 lately. Our calculations also showed that BAC ranked 18th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To most traders, hedge funds are perceived as slow, old investment tools of years past. While there are more than 8000 funds with their doors open at the moment, Our researchers choose to focus on the upper echelon of this club, around 850 funds. These money managers oversee most of the smart money’s total capital, and by following their unrivaled investments, Insider Monkey has revealed various investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Andrew Sandler of Sandler Capital Management

We leave no stone unturned when looking for the next great investment idea. For example this gold mining company is acquiring gold mines in Americas at a fraction of the cost of drilling them, so we look into its viability. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned nearly 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to view the key hedge fund action regarding Bank of America Corporation (NYSE:BAC).

How have hedgies been trading Bank of America Corporation (NYSE:BAC)?

Heading into the first quarter of 2020, a total of 99 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BAC over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Berkshire Hathaway was the largest shareholder of Bank of America Corporation (NYSE:BAC), with a stake worth $32578.8 million reported as of the end of September. Trailing Berkshire Hathaway was Steadfast Capital Management, which amassed a stake valued at $534.7 million. GQG Partners, Pzena Investment Management, and Theleme Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Ogborne Capital allocated the biggest weight to Bank of America Corporation (NYSE:BAC), around 30.71% of its 13F portfolio. Theleme Partners is also relatively very bullish on the stock, dishing out 23.57 percent of its 13F equity portfolio to BAC.

Due to the fact that Bank of America Corporation (NYSE:BAC) has faced bearish sentiment from hedge fund managers, it’s easy to see that there were a few funds that elected to cut their positions entirely heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $339.2 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also said goodbye to its stock, about $74.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Bank of America Corporation (NYSE:BAC). We will take a look at Berkshire Hathaway Inc. (NYSE:BRK-B), The Procter & Gamble Company (NYSE:PG), Mastercard Incorporated (NYSE:MA), and Exxon Mobil Corporation (NYSE:XOM). All of these stocks’ market caps match BAC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRK-B 113 23616180 2
PG 79 10725870 5
MA 125 14560784 0
XOM 63 2028251 8
Average 95 12732771 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 95 hedge funds with bullish positions and the average amount invested in these stocks was $12733 million. That figure was $38412 million in BAC’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand Exxon Mobil Corporation (NYSE:XOM) is the least popular one with only 63 bullish hedge fund positions. Bank of America Corporation (NYSE:BAC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately BAC wasn’t nearly as successful as these 20 stocks and hedge funds that were betting on BAC were disappointed as the stock returned -16.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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