We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards The Charles Schwab Corporation (NYSE:SCHW).
Is The Charles Schwab Corporation (NYSE:SCHW) a bargain? The best stock pickers were betting on the stock. The number of bullish hedge fund positions went up by 8 lately. The Charles Schwab Corporation (NYSE:SCHW) was in 61 hedge funds’ portfolios at the end of December. The all time high for this statistic is 71. Our calculations also showed that SCHW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 53 hedge funds in our database with SCHW holdings at the end of September.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Donald Yacktman of Yacktman Asset Management
At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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. With all of this in mind let’s take a look at the latest hedge fund action regarding The Charles Schwab Corporation (NYSE:SCHW).
Do Hedge Funds Think SCHW Is A Good Stock To Buy Now?
At the end of December, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the third quarter of 2020. On the other hand, there were a total of 70 hedge funds with a bullish position in SCHW a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in The Charles Schwab Corporation (NYSE:SCHW) was held by Generation Investment Management, which reported holding $1483.8 million worth of stock at the end of December. It was followed by Diamond Hill Capital with a $469.4 million position. Other investors bullish on the company included Route One Investment Company, Southpoint Capital Advisors, and Yacktman Asset Management. In terms of the portfolio weights assigned to each position Yost Capital Management allocated the biggest weight to The Charles Schwab Corporation (NYSE:SCHW), around 15.27% of its 13F portfolio. JNE Partners is also relatively very bullish on the stock, earmarking 13.82 percent of its 13F equity portfolio to SCHW.
Now, key money managers were breaking ground themselves. Southpoint Capital Advisors, managed by John Smith Clark, established the largest position in The Charles Schwab Corporation (NYSE:SCHW). Southpoint Capital Advisors had $212.2 million invested in the company at the end of the quarter. Tom Purcell and Marco Tablada’s Alua Capital Management also made a $87.7 million investment in the stock during the quarter. The following funds were also among the new SCHW investors: James Parsons’s Junto Capital Management, Steve Cohen’s Point72 Asset Management, and Joe Magyer’s Lakehouse Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Charles Schwab Corporation (NYSE:SCHW) but similarly valued. These stocks are Lockheed Martin Corporation (NYSE:LMT), Caterpillar Inc. (NYSE:CAT), Square, Inc. (NYSE:SQ), American Express Company (NYSE:AXP), Zoom Video Communications, Inc. (NASDAQ:ZM), The Estee Lauder Companies Inc (NYSE:EL), and Intuitive Surgical, Inc. (NASDAQ:ISRG). This group of stocks’ market caps are closest to SCHW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LMT | 53 | 2527739 | 6 |
| CAT | 53 | 4157844 | 12 |
| SQ | 89 | 8819199 | 16 |
| AXP | 60 | 21887073 | 12 |
| ZM | 59 | 6002261 | 3 |
| EL | 51 | 3593398 | 5 |
| ISRG | 49 | 1802145 | -1 |
| Average | 59.1 | 6969951 | 7.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 59.1 hedge funds with bullish positions and the average amount invested in these stocks was $6970 million. That figure was $4473 million in SCHW’s case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Intuitive Surgical, Inc. (NASDAQ:ISRG) is the least popular one with only 49 bullish hedge fund positions. The Charles Schwab Corporation (NYSE:SCHW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SCHW is 50.8. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on SCHW as the stock returned 33.2% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Schwab Charles Corp (NYSE:SCHW)
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Disclosure: None. This article was originally published at Insider Monkey.
