Is Bank of America Corporation (NYSE:BAC) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors. In this article we will compare BAC's hedge fund sentiment against its peers' like The Home Depot, Inc. (NYSE:HD), Verizon Communications Inc. (NYSE:VZ), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and The Walt Disney Company (NYSE:DIS).
Bank of America Corporation (NYSE:BAC) was in 95 hedge funds' portfolios at the end of the third quarter of 2019. BAC has experienced an increase in support from the world's most elite money managers recently. There were 94 hedge funds in our database with BAC positions at the end of the previous quarter. Our calculations also showed that BAC ranked 13th 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We're going to take a peek at the key hedge fund action regarding Bank of America Corporation (NYSE:BAC).
How have hedgies been trading Bank of America Corporation (NYSE:BAC)?
At Q3's end, a total of 95 of the hedge funds tracked by Insider Monkey were long this stock, a change of 1% from the second quarter of 2019. On the other hand, there were a total of 102 hedge funds with a bullish position in BAC a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Berkshire Hathaway, managed by Warren Buffett, holds the number one position in Bank of America Corporation (NYSE:BAC). Berkshire Hathaway has a $27.0478 billion position in the stock, comprising 12.6% of its 13F portfolio. The second most bullish fund manager is Richard S. Pzena of Pzena Investment Management, with a $420.4 million position; 2.3% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions encompass Patrick Degorce's Theleme Partners, Robert Rodriguez and Steven Romick's First Pacific Advisors and Robert Pitts's Steadfast Capital Management. In terms of the portfolio weights assigned to each position Ogborne Capital allocated the biggest weight to Bank of America Corporation (NYSE:BAC), around 40.7% of its portfolio. Theleme Partners is also relatively very bullish on the stock, setting aside 18.7 percent of its 13F equity portfolio to BAC.
As one would reasonably expect, key hedge funds have jumped into Bank of America Corporation (NYSE:BAC) headfirst. Tontine Asset Management, managed by Jeffrey Gendell, established the biggest call position in Bank of America Corporation (NYSE:BAC). Tontine Asset Management had $40.8 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers's Castle Hook Partners also made a $19.4 million investment in the stock during the quarter. The other funds with brand new BAC positions are Kevin D. Eng's Columbus Hill Capital Management, Curtis Schenker and Craig Effron's Scoggin, and Ken Heebner's Capital Growth Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Bank of America Corporation (NYSE:BAC) but similarly valued. These stocks are The Home Depot, Inc. (NYSE:HD), Verizon Communications Inc. (NYSE:VZ), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and The Walt Disney Company (NYSE:DIS). This group of stocks' market valuations resemble BAC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HD,60,4349926,7 VZ,56,2373783,2 TSM,52,5161771,10 DIS,105,4233957,-8 Average,68.25,4029859,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 68.25 hedge funds with bullish positions and the average amount invested in these stocks was $4030 million. That figure was $32050 million in BAC's case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 52 bullish hedge fund positions. Bank of America Corporation (NYSE:BAC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on BAC as the stock returned 13.7% during the fourth quarter (through 11/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.