Was The Smart Money Right About The Charles Schwab Corporation (SCHW)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards The Charles Schwab Corporation (NYSE:SCHW) and determine whether hedge funds skillfully traded this stock.

The Charles Schwab Corporation (NYSE:SCHW) has experienced a decrease in activity from the world’s largest hedge funds recently. The Charles Schwab Corporation (NYSE:SCHW) was in 59 hedge funds’ portfolios at the end of September. The all time high for this statistic is 76. Our calculations also showed that SCHW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Donald Yacktman of Yacktman Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind let’s view the new hedge fund action surrounding The Charles Schwab Corporation (NYSE:SCHW).

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

At the end of September, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. By comparison, 53 hedge funds held shares or bullish call options in SCHW a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is SCHW A Good Stock To Buy?

Among these funds, Egerton Capital Limited held the most valuable stake in The Charles Schwab Corporation (NYSE:SCHW), which was worth $1039 million at the end of the third quarter. On the second spot was Generation Investment Management which amassed $940.5 million worth of shares. Route One Investment Company, Intermede Investment Partners, and Yacktman Asset 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 Yost Capital Management allocated the biggest weight to The Charles Schwab Corporation (NYSE:SCHW), around 12.96% of its 13F portfolio. Route One Investment Company is also relatively very bullish on the stock, earmarking 11.98 percent of its 13F equity portfolio to SCHW.

Seeing as The Charles Schwab Corporation (NYSE:SCHW) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, Matthew Stadelman’s Diamond Hill Capital dropped the largest position of all the hedgies tracked by Insider Monkey, comprising about $464.9 million in stock, and James Parsons’s Junto Capital Management was right behind this move, as the fund dumped about $44 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 13 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to The Charles Schwab Corporation (NYSE:SCHW). We will take a look at Sony Group Corp (NYSE:SONY), BHP Group (NYSE:BHP), HDFC Bank Limited (NYSE:HDB), American Express Company (NYSE:AXP), Bristol Myers Squibb Company (NYSE:BMY), Starbucks Corporation (NASDAQ:SBUX), and Raytheon Technologies Corp (NYSE:RTX). This group of stocks’ market values match SCHW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SONY 19 388862 -1
BHP 18 899835 0
HDB 40 1794819 1
AXP 57 29603207 5
BMY 74 4758551 1
SBUX 58 4807317 -5
RTX 48 2259405 -5
Average 44.9 6358857 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.9 hedge funds with bullish positions and the average amount invested in these stocks was $6359 million. That figure was $4579 million in SCHW’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 18 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 51.9. 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 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 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on SCHW as the stock returned 20.7% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Follow Schwab Charles Corp (NYSE:SCHW)

Suggested Articles:

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