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

The Insider Monkey team has completed processing the quarterly 13F filings for the March quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards The Charles Schwab Corporation (NYSE:SCHW).

Is The Charles Schwab Corporation (NYSE:SCHW) a healthy stock for your portfolio? Money managers were in a bullish mood. The number of long hedge fund positions inched up by 15 recently. The Charles Schwab Corporation (NYSE:SCHW) was in 76 hedge funds’ portfolios at the end of March. The all time high for this statistic was previously 71. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SCHW isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 61 hedge funds in our database with SCHW positions at the end of the fourth quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks 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 let’s take a look at the fresh hedge fund action encompassing The Charles Schwab Corporation (NYSE:SCHW).

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

At the end of March, a total of 76 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCHW over the last 23 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is SCHW A Good Stock To Buy?

More specifically, Generation Investment Management was the largest shareholder of The Charles Schwab Corporation (NYSE:SCHW), with a stake worth $1150.9 million reported as of the end of March. Trailing Generation Investment Management was Route One Investment Company, which amassed a stake valued at $480.2 million. Diamond Hill Capital, Intermede Investment Partners, and Southpoint Capital Advisors 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 Yost Capital Management allocated the biggest weight to The Charles Schwab Corporation (NYSE:SCHW), around 17% of its 13F portfolio. Route One Investment Company is also relatively very bullish on the stock, designating 12.11 percent of its 13F equity portfolio to SCHW.

As aggregate interest increased, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most valuable position in The Charles Schwab Corporation (NYSE:SCHW). Balyasny Asset Management had $92.3 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $72.6 million position during the quarter. The following funds were also among the new SCHW investors: Jeffrey Hoffner’s Engle Capital, Benjamin A. Smith’s Laurion Capital Management, and Greg Poole’s Echo Street Capital Management.

Let’s now review hedge fund activity in other stocks similar to The Charles Schwab Corporation (NYSE:SCHW). We will take a look at Applied Materials, Inc. (NASDAQ:AMAT), TOTAL S.A. (NYSE:TOT), International Business Machines Corp. (NYSE:IBM), HSBC Holdings plc (NYSE:HSBC), Toronto-Dominion Bank (NYSE:TD), Deere & Company (NYSE:DE), and Raytheon Technologies Corp (NYSE:RTX). This group of stocks’ market valuations resemble SCHW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMAT 78 5711193 17
TOT 17 1163601 3
IBM 41 1355701 -10
HSBC 12 234093 -2
TD 19 212935 -3
DE 51 2047270 -3
RTX 58 2497449 -1
Average 39.4 1888892 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.4 hedge funds with bullish positions and the average amount invested in these stocks was $1889 million. That figure was $4905 million in SCHW’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 12 bullish hedge fund positions. The Charles Schwab Corporation (NYSE:SCHW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SCHW is 88.5. 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. 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 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 25.8% in 2021 through August 6th and beat the market again by 6.7 percentage points. Unfortunately SCHW wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SCHW were disappointed as the stock returned 10.6% since the end of March (through 8/6) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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