Is Charles Schwab Corp (NYSE:SCHW) a bargain? Hedge funds are turning less bullish. The number of bullish hedge fund positions stayed the same which is a slightly negative development in our experience
If you’d ask most traders, hedge funds are perceived as slow, old investment vehicles of yesteryear. While there are more than 8000 funds in operation today, we hone in on the aristocrats of this club, around 450 funds. It is estimated that this group oversees the lion’s share of the smart money’s total asset base, and by keeping an eye on their highest performing stock picks, we have determined a few investment strategies that have historically outperformed the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).
Equally as important, optimistic insider trading activity is another way to parse down the financial markets. Just as you’d expect, there are a variety of stimuli for a corporate insider to cut shares of his or her company, but only one, very simple reason why they would buy. Many empirical studies have demonstrated the market-beating potential of this strategy if you understand where to look (learn more here).
Now, it’s important to take a peek at the recent action regarding Charles Schwab Corp (NYSE:SCHW).
How have hedgies been trading Charles Schwab Corp (NYSE:SCHW)?
In preparation for this quarter, a total of 32 of the hedge funds we track held long positions in this stock, a change of 0% from the previous quarter. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly.
According to our comprehensive database, John H. Scully’s SPO Advisory Corp had the most valuable position in Charles Schwab Corp (NYSE:SCHW), worth close to $851.3 million, comprising 11.5% of its total 13F portfolio. Coming in second is Glenn Greenberg of Brave Warrior Capital, with a $154.9 million position; the fund has 8.2% of its 13F portfolio invested in the stock. Remaining hedge funds that hold long positions include Ric Dillon’s Diamond Hill Capital, Lou Simpson’s SQ Advisors and Bob Peck and Andy Raab’s FPR Partners.
Because Charles Schwab Corp (NYSE:SCHW) has experienced declining sentiment from hedge fund managers, it’s safe to say that there is a sect of money managers that slashed their entire stakes heading into Q2. It’s worth mentioning that Curtis Macnguyen’s Ivory Capital (Investment Mgmt) said goodbye to the biggest investment of the “upper crust” of funds we monitor, valued at an estimated $26.3 million in stock., and Steven Cohen of SAC Capital Advisors was right behind this move, as the fund cut about $4.3 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
How have insiders been trading Charles Schwab Corp (NYSE:SCHW)?
Insider purchases made by high-level executives is most useful when the company we’re looking at has experienced transactions within the past 180 days. Over the latest six-month time frame, Charles Schwab Corp (NYSE:SCHW) has seen zero unique insiders buying, and 9 insider sales (see the details of insider trades here).
Let’s also review hedge fund and insider activity in other stocks similar to Charles Schwab Corp (NYSE:SCHW). These stocks are LPL Financial Holdings Inc (NASDAQ:LPLA), TD Ameritrade Holding Corp. (NYSE:AMTD), Morgan Stanley (NYSE:MS), CME Group Inc (NASDAQ:CME), and Nomura Holdings, Inc. (ADR) (NYSE:NMR). All of these stocks are in the investment brokerage – national industry and their market caps match SCHW’s market cap.