Should I Avoid Bank of America Corporation (BAC)?

In this article you are going to find out whether hedge funds think Bank of America Corporation (NYSE:BAC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Bank of America Corporation (NYSE:BAC) has seen a decrease in support from the world’s most elite money managers recently. Bank of America Corporation (NYSE:BAC) was in 87 hedge funds’ portfolios at the end of June. The all time high for this statistic is 139. There were 97 hedge funds in our database with BAC holdings at the end of March. Our calculations also showed that BAC ranked 28th among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Rajiv Jain of GQG Partners

Rajiv Jain of GQG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s take a glance at the new hedge fund action surrounding Bank of America Corporation (NYSE:BAC).

Do Hedge Funds Think BAC Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 87 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. By comparison, 91 hedge funds held shares or bullish call options in BAC a year ago. So, let’s check out 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 $41646.4 million reported as of the end of June. Trailing Berkshire Hathaway was GQG Partners, which amassed a stake valued at $1206.2 million. Diamond Hill Capital, Citadel Investment Group, and Pzena Investment Management 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 Aquamarine Capital Management allocated the biggest weight to Bank of America Corporation (NYSE:BAC), around 14.85% of its 13F portfolio. Berkshire Hathaway is also relatively very bullish on the stock, earmarking 14.21 percent of its 13F equity portfolio to BAC.

Seeing as Bank of America Corporation (NYSE:BAC) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedgies that slashed their entire stakes heading into Q3. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management sold off the largest stake of the 750 funds monitored by Insider Monkey, totaling an estimated $168.6 million in stock. Robert Pohly’s fund, Samlyn Capital, also said goodbye to its stock, about $68.4 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 10 funds heading into Q3.

Let’s now review 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 Paypal Holdings Inc (NASDAQ:PYPL), The Home Depot, Inc. (NYSE:HD), The Procter & Gamble Company (NYSE:PG), The Walt Disney Company (NYSE:DIS), ASML Holding N.V. (NASDAQ:ASML), Adobe Inc. (NASDAQ:ADBE), and Exxon Mobil Corporation (NYSE:XOM). This group of stocks’ market caps resemble BAC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PYPL 143 16352523 0
HD 64 4177204 -4
PG 68 6934291 -2
DIS 112 10830152 -22
ASML 44 4323106 9
ADBE 89 13101408 -18
XOM 68 3698096 3
Average 84 8488111 -4.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 84 hedge funds with bullish positions and the average amount invested in these stocks was $8488 million. That figure was $46537 million in BAC’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 44 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. Our overall hedge fund sentiment score for BAC is 35.5. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.1% in 2021 through September 20th and beat the market again by 6.9 percentage points. Unfortunately BAC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BAC were disappointed as the stock returned -4.7% since the end of June (through 9/20) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Follow Bank Of America Corp (NYSE:BAC)

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