Were Hedge Funds Early Betting On Wells Fargo & Company (WFC)?

Is Wells Fargo & Company (NYSE:WFC) a splendid investment right now? The best stock pickers were taking an optimistic view. The number of long hedge fund bets improved by 10 lately. Wells Fargo & Company (NYSE:WFC) was in 86 hedge funds’ portfolios at the end of June. The all time high for this statistics is 104. Our calculations also showed that WFC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we’re going to go over the key hedge fund action encompassing Wells Fargo & Company (NYSE:WFC).

What does smart money think about Wells Fargo & Company (NYSE:WFC)?

Heading into the third quarter of 2020, a total of 86 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the first quarter of 2020. By comparison, 65 hedge funds held shares or bullish call options in WFC a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, Berkshire Hathaway held the most valuable stake in Wells Fargo & Company (NYSE:WFC), which was worth $6082.1 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $760.9 million worth of shares. D E Shaw, Arrowstreet Capital, 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 Magnolia Capital Fund allocated the biggest weight to Wells Fargo & Company (NYSE:WFC), around 25% of its 13F portfolio. Theleme Partners is also relatively very bullish on the stock, designating 12.87 percent of its 13F equity portfolio to WFC.

As aggregate interest increased, some big names have jumped into Wells Fargo & Company (NYSE:WFC) headfirst. Duquesne Capital, managed by Stanley Druckenmiller, assembled the largest position in Wells Fargo & Company (NYSE:WFC). Duquesne Capital had $39.6 million invested in the company at the end of the quarter. Brian J. Higgins’s King Street Capital also made a $34.6 million investment in the stock during the quarter. The following funds were also among the new WFC investors: Brandon Haley’s Holocene Advisors, George Soros’s Soros Fund Management, and Quincy Lee’s Ancient Art (Teton Capital).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Wells Fargo & Company (NYSE:WFC) but similarly valued. We will take a look at BHP Group (NYSE:BBL), The Boeing Company (NYSE:BA), PetroChina Company Limited (NYSE:PTR), Pinduoduo Inc. (NASDAQ:PDD), QUALCOMM, Incorporated (NASDAQ:QCOM), Lockheed Martin Corporation (NYSE:LMT), and GlaxoSmithKline plc (NYSE:GSK). All of these stocks’ market caps resemble WFC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1748 million. That figure was $10345 million in WFC’s case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Wells Fargo & Company (NYSE:WFC) is more popular among hedge funds. Our overall hedge fund sentiment score for WFC is 84.8. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Unfortunately WFC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WFC were disappointed as the stock returned -10.3% since the end of the second quarter (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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