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How JP Morgan and Other Hedge Fund Favorites Performed in Q2

Insider Monkey tracks hedge funds, billionaires, and prominent value investors for a very simple reason: their consensus picks generally outperform the market. We aren’t the only research shop broadcasting this fact using a bullhorn. Here is what strategist Ben Snider said in Goldman Sachs’ periodic hedge fund report:

“Despite the strong track record of popular hedge fund stocks, investors often view high ownership as a negative trait when evaluating stock prospects. Clients often ask us to include hedge fund ownership data in stock screens, expressing a preference for buying ‘under-owned’ stocks.”

“In fact, during the past decade hedge fund popularity has been a more useful criterion for selecting stocks than valuations…. The signals from hedge fund popularity and valuation have been particularly useful in combination, especially for investors with slightly longer investment horizons. During the past decade, popular stocks have generally outperformed unpopular stocks across both 3- and 12-month investment horizons” Snider concluded.

It may sound like I am tooting my own horn, but Insider Monkey’s quarterly newsletter is actually superior to Goldman’s report. That’s because we separated the hedge fund favorites into long and short buckets. Our long bucket of hedge fund favorites returned 34.1% in the first half of 2019, whereas our short bucket of hedge fund favorites gained 21.4% during the same period. Hedge funds’ favorite top 20 stocks, on the other hand, returned 24% so far in 2019. You could have beaten the S&P 500 Index funds by 5.7 percentage points by investing in hedge funds’ top 20 picks in 2019, whereas you could have outperformed the index funds by 15.8 percentage points if you invested in our top hedge fund picks. You can try out our newsletter free of charge for 14 days to see hedge funds’ latest best stock picks.

The #10 most popular stock among the 743 hedge funds tracked by Insider Monkey was JPMorgan Chase & Co. (NYSE:JPM).  JP Morgan was also the ninth most popular stock among hedge funds at the end of December (see the 30 most popular stocks among hedge funds).

We have to warn you against indiscriminately imitating hedge funds’ all stock picks. Hedge funds’ top 20 stock picks outperformed the S&P 500 Index funds by 5.7 percentage points this year, but hedge funds’ top 500 stock picks had the same return as the S&P 500 Index this quarter. Investing in a hedge fund’s 35th best idea doesn’t give you the same return as investing in a hedge fund’s best idea.

Warren Buffett

Warren Buffett

Let’s take a glance at the fresh hedge fund action encompassing JPMorgan Chase & Co. (NYSE:JPM).

How are hedge funds trading JPMorgan Chase & Co. (NYSE:JPM)?

Heading into the second quarter of 2019, a total of 100 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -1% from the fourth quarter of 2018. By comparison, 100 hedge funds held shares or bullish call options in JPM a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

JPM_may2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the largest position in JPMorgan Chase & Co. (NYSE:JPM), worth close to $6.0247 billion, accounting for 3% of its total 13F portfolio. The second largest stake is held by Fisher Asset Management, managed by Ken Fisher, which holds a $529.8 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions encompass Edgar Wachenheim’s Greenhaven Associates, Phill Gross and Robert Atchinson’s Adage Capital Management and Richard S. Pzena’s Pzena Investment Management.

Seeing as JPMorgan Chase & Co. (NYSE:JPM) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few hedge funds who were dropping their full holdings heading into Q3. Interestingly, Robert Pitts’s Steadfast Capital Management dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $124.8 million in stock. Richard Chilton’s fund, Chilton Investment Company, also dropped its stock, about $81.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as JPMorgan Chase & Co. (NYSE:JPM) but similarly valued. These stocks are Walmart Inc. (NYSE:WMT), Nestle SA (OTCMKTS:NSRGY), Royal Dutch Shell plc (NYSE:RDS), and Bank of America Corporation (NYSE:BAC). All of these stocks’ market caps resemble JPM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WMT 57 4392529 -6
NSRGY 4 1617628 0
RDS 33 1708020 0
BAC 96 29064383 -3
Average 47.5 9195640 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.5 hedge funds with bullish positions and the average amount invested in these stocks was $9196 million. That figure was $10349 million in JPM’s case. Bank of America Corporation (NYSE:BAC) is the most popular stock in this table. On the other hand Nestle SA (OTCMKTS:NSRGY) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks JPMorgan Chase & Co. (NYSE:JPM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 and outperformed the S&P 500 ETF (SPY) by more than 2 percentage points (hedge funds’ 3 most favorite stocks returned more than 35% this year). Hedge funds were also right about betting on JPM as the stock returned 11.3% during the same period 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.

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

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