How Did Charles Schwab Corp (SCHW) Compare Against Top Hedge Fund Stocks in 2019?

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about Charles Schwab Corp (NYSE:SCHW)?

Charles Schwab Corp (NYSE:SCHW) was in 52 hedge funds’ portfolios at the end of the third quarter of 2019. SCHW shareholders have witnessed an increase in enthusiasm from smart money of late. There were 48 hedge funds in our database with SCHW holdings at the end of the previous quarter. Our calculations also showed that SCHW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to check out the fresh hedge fund action encompassing Charles Schwab Corp (NYSE:SCHW).

Hedge fund activity in Charles Schwab Corp (NYSE:SCHW)

At Q3’s end, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the second quarter of 2019. By comparison, 53 hedge funds held shares or bullish call options in SCHW a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SCHW A Good Stock To Buy?

Among these funds, Generation Investment Management held the most valuable stake in Charles Schwab Corp (NYSE:SCHW), which was worth $1133.3 million at the end of the third quarter. On the second spot was Route One Investment Company which amassed $509 million worth of shares. Eminence Capital, Diamond Hill Capital, and Brave Warrior Capital 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 Route One Investment Company allocated the biggest weight to Charles Schwab Corp (NYSE:SCHW), around 15.35% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, setting aside 9.84 percent of its 13F equity portfolio to SCHW.

As aggregate interest increased, key money managers have jumped into Charles Schwab Corp (NYSE:SCHW) headfirst. Eminence Capital, managed by Ricky Sandler, assembled the most valuable call position in Charles Schwab Corp (NYSE:SCHW). Eminence Capital had $145.5 million invested in the company at the end of the quarter. Ric Dillon’s Diamond Hill Capital also made a $144.2 million investment in the stock during the quarter. The other funds with brand new SCHW positions are James Parsons’s Junto Capital Management, Daniel Johnson’s Gillson Capital, and John Osterweis’s Osterweis Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Charles Schwab Corp (NYSE:SCHW) but similarly valued. These stocks are Raytheon Company (NYSE:RTN), Target Corporation (NYSE:TGT), General Motors Company (NYSE:GM), and Takeda Pharmaceutical Company Limited (NYSE:TAK). This group of stocks’ market values resemble SCHW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RTN 49 3254934 10
TGT 53 2073012 16
GM 68 6375993 19
TAK 28 1243754 1
Average 49.5 3236923 11.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 49.5 hedge funds with bullish positions and the average amount invested in these stocks was $3237 million. That figure was $3126 million in SCHW’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 28 bullish hedge fund positions. Charles Schwab Corp (NYSE:SCHW) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately SCHW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SCHW were disappointed as the stock returned 19.2% in 2019 (through December 23rd) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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