Were Hedge Funds Right About Crowding The Charles Schwab Corporation (SCHW)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of The Charles Schwab Corporation (NYSE:SCHW).

The Charles Schwab Corporation (NYSE:SCHW) investors should pay attention to an increase in hedge fund sentiment in recent months. The Charles Schwab Corporation (NYSE:SCHW) was in 71 hedge funds’ portfolios at the end of June. The all time high for this statistics is 70. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 62 hedge funds in our database with SCHW positions at the end of the first quarter. Our calculations also showed that SCHW 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.

In today’s marketplace there are dozens of indicators stock market investors put to use to value stocks. A couple of the less utilized indicators are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the elite fund managers can outpace their index-focused peers by a solid amount (see the details here).

David Blood

David Blood of Generation Investment Management

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. Keeping this in mind we’re going to take a glance at the key hedge fund action surrounding The Charles Schwab Corporation (NYSE:SCHW).

How have hedgies been trading The Charles Schwab Corporation (NYSE:SCHW)?

At Q2’s end, a total of 71 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCHW over the last 20 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, David Blood and Al Gore’s Generation Investment Management has the largest position in The Charles Schwab Corporation (NYSE:SCHW), worth close to $895.4 million, accounting for 5.2% of its total 13F portfolio. Coming in second is Route One Investment Company, managed by William Duhamel, which holds a $491.4 million position; 14% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism consist of Ric Dillon’s Diamond Hill Capital, Ken Griffin’s Citadel Investment Group and Ricky Sandler’s Eminence Capital. In terms of the portfolio weights assigned to each position Route One Investment Company allocated the biggest weight to The Charles Schwab Corporation (NYSE:SCHW), around 14.01% of its 13F portfolio. Yost Capital Management is also relatively very bullish on the stock, setting aside 12.53 percent of its 13F equity portfolio to SCHW.

Now, some big names have been driving this bullishness. Greenhaven Associates, managed by Edgar Wachenheim, assembled the largest position in The Charles Schwab Corporation (NYSE:SCHW). Greenhaven Associates had $123.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $86.3 million investment in the stock during the quarter. The other funds with brand new SCHW positions are Phill Gross and Robert Atchinson’s Adage Capital Management, Thyra Zerhusen’s Fairpointe Capital, and Parvinder Thiara’s Athanor Capital.

Let’s now take a look at hedge fund activity in other stocks similar to The Charles Schwab Corporation (NYSE:SCHW). We will take a look at General Dynamics Corporation (NYSE:GD), Vodafone Group Plc (NASDAQ:VOD), National Grid plc (NYSE:NGG), Ferrari N.V. (NYSE:RACE), Koninklijke Philips NV (NYSE:PHG), Ambev SA (NYSE:ABEV), and UBS Group AG (NYSE:UBS). This group of stocks’ market values are closest to SCHW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GD 42 5491682 3
VOD 16 726090 2
NGG 2 430749 -4
RACE 25 1361698 -4
PHG 6 83694 -5
ABEV 13 517659 4
UBS 16 302408 1
Average 17.1 1273426 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.1 hedge funds with bullish positions and the average amount invested in these stocks was $1273 million. That figure was $3296 million in SCHW’s case. General Dynamics Corporation (NYSE:GD) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks The Charles Schwab Corporation (NYSE:SCHW) is more popular among hedge funds. Our overall hedge fund sentiment score for SCHW is 90. 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 returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on SCHW as the stock returned 17.1% since the end of June (through 10/16) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Follow Schwab Charles Corp (NYSE:SCHW)

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