Were Hedge Funds Right About Fleeing From Charles Schwab Corp (SCHW) ?

We at Insider Monkey have gone over 700 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Charles Schwab Corp (NYSE:SCHW) based on that data.

Is Charles Schwab Corp (NYSE:SCHW) the right pick for your portfolio? The smart money is becoming less hopeful. The number of bullish hedge fund bets dropped by 7 recently. Our calculations also showed that SCHW isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.


Let’s review the recent hedge fund action surrounding Charles Schwab Corp (NYSE:SCHW).

What have hedge funds been doing with Charles Schwab Corp (NYSE:SCHW)?

At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCHW over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, Generation Investment Management held the most valuable stake in Charles Schwab Corp (NYSE:SCHW), which was worth $585.3 million at the end of the third quarter. On the second spot was Theleme Partners which amassed $420.1 million worth of shares. Moreover, Route One Investment Company, Maverick Capital, and SQ Advisors were also bullish on Charles Schwab Corp (NYSE:SCHW), allocating a large percentage of their portfolios to this stock.

Since Charles Schwab Corp (NYSE:SCHW) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few fund managers that decided to sell off their full holdings in the third quarter. It’s worth mentioning that John Armitage’s Egerton Capital Limited cut the largest stake of the 700 funds followed by Insider Monkey, totaling an estimated $319.2 million in call options. Lee Hicks and Jan Koerner’s fund, Park Presidio Capital, also cut its call options, about $54.1 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 7 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Charles Schwab Corp (NYSE:SCHW). These stocks are Baidu, Inc. (NASDAQ:BIDU), The TJX Companies, Inc. (NYSE:TJX), Intuitive Surgical, Inc. (NASDAQ:ISRG), and Canadian National Railway Company (NYSE:CNI). All of these stocks’ market caps match SCHW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BIDU 51 2836967 -2
TJX 58 3062239 9
ISRG 49 1473696 5
CNI 24 1907652 -2
Average 45.5 2320139 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.5 hedge funds with bullish positions and the average amount invested in these stocks was $2320 million. That figure was $3230 million in SCHW’s case. The TJX Companies, Inc. (NYSE:TJX) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 24 bullish hedge fund positions. Charles Schwab Corp (NYSE:SCHW) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately SCHW wasn’t in this group. Hedge funds that bet on SCHW were disappointed as the stock returned 9.8% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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