Was The Smart Money Right About Wells Fargo & Company (WFC)?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Wells Fargo & Company (NYSE:WFC).

Wells Fargo & Company (NYSE:WFC) shareholders have witnessed a decrease in support from the world’s most elite money managers recently. Wells Fargo & Company (NYSE:WFC) was in 94 hedge funds’ portfolios at the end of June. The all time high for this statistic is 104. Our calculations also showed that WFC ranked 23rd among the 30 most popular stocks among hedge funds (click for Q2 rankings).

To the average investor there are many metrics stock traders can use to grade stocks. A duo of the most underrated metrics are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the top investment managers can outclass their index-focused peers by a solid margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy 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. Keeping this in mind we’re going to go over the fresh hedge fund action surrounding Wells Fargo & Company (NYSE:WFC).

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

At second quarter’s end, a total of 94 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 86 hedge funds with a bullish position in WFC a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Eagle Capital Management held the most valuable stake in Wells Fargo & Company (NYSE:WFC), which was worth $1581 million at the end of the second quarter. On the second spot was Theleme Partners which amassed $911.6 million worth of shares. Pzena Investment Management, Citadel Investment Group, and First Pacific Advisors LLC 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 Voleon Capital allocated the biggest weight to Wells Fargo & Company (NYSE:WFC), around 33.32% of its 13F portfolio. Theleme Partners is also relatively very bullish on the stock, setting aside 26.62 percent of its 13F equity portfolio to WFC.

Due to the fact that Wells Fargo & Company (NYSE:WFC) has faced a decline in interest from hedge fund managers, it’s easy to see that there is a sect of hedge funds who sold off their entire stakes last quarter. It’s worth mentioning that Jacob Mitchell’s Antipodes Partners said goodbye to the largest position of the “upper crust” of funds monitored by Insider Monkey, valued at about $93 million in stock, and Ravi Chopra’s Azora Capital was right behind this move, as the fund dropped about $31.7 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Wells Fargo & Company (NYSE:WFC) but similarly valued. These stocks are Accenture Plc (NYSE:ACN), BHP Group (NYSE:BHP), Shopify Inc (NYSE:SHOP), United Parcel Service, Inc. (NYSE:UPS), T-Mobile US, Inc. (NASDAQ:TMUS), Texas Instruments Incorporated (NASDAQ:TXN), and Costco Wholesale Corporation (NASDAQ:COST). This group of stocks’ market values are closest to WFC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACN 52 3151789 4
BHP 18 752906 0
SHOP 85 13978469 -6
UPS 52 2188804 8
TMUS 100 8020682 2
TXN 50 2468540 8
COST 54 4321174 -2
Average 58.7 4983195 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.7 hedge funds with bullish positions and the average amount invested in these stocks was $4983 million. That figure was $7084 million in WFC’s case. T-Mobile US, Inc. (NASDAQ:TMUS) 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. Wells Fargo & Company (NYSE:WFC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WFC is 76.5. 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. 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 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on WFC as the stock returned 13.5% since the end of Q2 (through 10/29) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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