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Should I Avoid JPMorgan Chase & Co. (JPM)?

·6 min read

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 866 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article we look at what those investors think of JPMorgan Chase & Co. (NYSE:JPM).

JPMorgan Chase & Co. (NYSE:JPM) has seen a decrease in hedge fund sentiment of late. JPMorgan Chase & Co. (NYSE:JPM) was in 111 hedge funds' portfolios at the end of March. The all time high for this statistic is 123. Our calculations also showed that JPM ranked 14th among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 percentage points since March 2017 (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.

Glenn Greenberg
Glenn Greenberg

Glenn Greenberg of Brave Warrior Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell 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. Now let's take a look at the fresh hedge fund action surrounding JPMorgan Chase & Co. (NYSE:JPM).

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

At Q1's end, a total of 111 of the hedge funds tracked by Insider Monkey were long this stock, a change of -1% from the previous quarter. On the other hand, there were a total of 112 hedge funds with a bullish position in JPM a year ago. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in JPMorgan Chase & Co. (NYSE:JPM) was held by Fisher Asset Management, which reported holding $1018.7 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $484.3 million position. Other investors bullish on the company included Gardner Russo & Gardner, Adage Capital Management, and Brave Warrior Capital. In terms of the portfolio weights assigned to each position Global Frontier Investments allocated the biggest weight to JPMorgan Chase & Co. (NYSE:JPM), around 32.13% of its 13F portfolio. Brave Warrior Capital is also relatively very bullish on the stock, earmarking 10.85 percent of its 13F equity portfolio to JPM.

Due to the fact that JPMorgan Chase & Co. (NYSE:JPM) has experienced falling interest from the aggregate hedge fund industry, we can see that there were a few fund managers that decided to sell off their entire stakes in the first quarter. It's worth mentioning that Daniel Sundheim's D1 Capital Partners said goodbye to the largest stake of all the hedgies monitored by Insider Monkey, totaling about $1013 million in stock, and Robert Pitts's Steadfast Capital Management was right behind this move, as the fund dropped about $230.4 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds in the first quarter.

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), Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), Mastercard Incorporated (NYSE:MA), UnitedHealth Group Inc. (NYSE:UNH), The Walt Disney Company (NYSE:DIS), and Bank of America Corporation (NYSE:BAC). This group of stocks' market caps resemble JPM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position V,164,26588103,-2 JNJ,81,6913373,0 WMT,58,5881223,-12 MA,151,17097200,-3 UNH,89,12091302,-2 DIS,134,12552763,-10 BAC,97,45321286,-2 Average,110.6,18063607,-4.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 110.6 hedge funds with bullish positions and the average amount invested in these stocks was $18064 million. That figure was $5254 million in JPM's case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 58 bullish hedge fund positions. JPMorgan Chase & Co. (NYSE:JPM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JPM is 69.1. 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 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately JPM wasn't nearly as popular as these 5 stocks and hedge funds that were betting on JPM were disappointed as the stock returned 5.9% since the end of March (through 6/11) 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.

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