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Were Hedge Funds Right About JPMorgan Chase & Co. (JPM)?

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is JPMorgan Chase & Co. (NYSE:JPM) a buy right now? Prominent investors are betting on the stock. The number of long hedge fund bets improved by 2 in recent months. Our calculations also showed that JPM is among the 30 most popular stocks among hedge funds, ranking 10th. JPM was in 101 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 99 hedge funds in our database with JPM holdings at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Warren Buffett and Billionaires

Let’s check out the recent hedge fund action encompassing JPMorgan Chase & Co. (NYSE:JPM).

Hedge fund activity in JPMorgan Chase & Co. (NYSE:JPM)

Heading into the first quarter of 2019, a total of 101 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the second quarter of 2018. On the other hand, there were a total of 100 hedge funds with a bullish position in JPM a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

JPM_mar2019

More specifically, Berkshire Hathaway was the largest shareholder of JPMorgan Chase & Co. (NYSE:JPM), with a stake worth $4892.4 million reported as of the end of September. Trailing Berkshire Hathaway was Lansdowne Partners, which amassed a stake valued at $563.2 million. Fisher Asset Management, Greenhaven Associates, and Adage Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, some big names have jumped into JPMorgan Chase & Co. (NYSE:JPM) headfirst. Steadfast Capital Management, managed by Robert Pitts, assembled the largest position in JPMorgan Chase & Co. (NYSE:JPM). Steadfast Capital Management had $124.8 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $59.8 million position during the quarter. The other funds with new positions in the stock are Andrew Weiss’s Weiss Asset Management, and Parvinder Thiara’s Athanor Capital.

Let’s now take a look at hedge fund activity in other stocks similar to JPMorgan Chase & Co. (NYSE:JPM). We will take a look at Visa Inc (NYSE:V), Exxon Mobil Corporation (NYSE:XOM), Walmart Inc. (NYSE:WMT), and Nestle SA (OTCMKTS:NSRGY). This group of stocks’ market valuations resemble JPM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
V 128 13066923 16
XOM 53 1613920 0
WMT 63 4444246 3
NSRGY 4 1502328 -1
Average 62 5156854 4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 62 hedge funds with bullish positions and the average amount invested in these stocks was $5157 million. That figure was $10017 million in JPM’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Nestle SA (OTCMKTS:NSRGY) is the least popular one with only 4 bullish hedge fund positions. JPMorgan Chase & Co. (NYSE:JPM) is not the most popular stock in this group but hedge fund interest is still among the highest. 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. Only two of these 15 stocks didn’t outperform the market and JPM was one of them,  returning only 10%.

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

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