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In this article we are going to use hedge fund sentiment as a tool and determine whether Bank of America Corporation (NYSE:BAC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is BAC stock a buy or sell? Bank of America Corporation (NYSE:BAC) has experienced an increase in activity from the world's largest hedge funds lately. Bank of America Corporation (NYSE:BAC) was in 99 hedge funds' portfolios at the end of December. The all time high for this statistic is 139. There were 88 hedge funds in our database with BAC positions at the end of the third quarter. Our calculations also showed that BAC ranked 22nd among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here).
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Do Hedge Funds Think BAC Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 99 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in BAC over the last 22 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Berkshire Hathaway held the most valuable stake in Bank of America Corporation (NYSE:BAC), which was worth $30616.2 million at the end of the fourth quarter. On the second spot was GQG Partners which amassed $871.1 million worth of shares. Citadel Investment Group, Diamond Hill Capital, and Pzena Investment Management 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 Aquamarine Capital Management allocated the biggest weight to Bank of America Corporation (NYSE:BAC), around 13.58% of its 13F portfolio. Adam Capital is also relatively very bullish on the stock, setting aside 12.92 percent of its 13F equity portfolio to BAC.
Consequently, specific money managers were leading the bulls' herd. GQG Partners, managed by Rajiv Jain, assembled the most valuable position in Bank of America Corporation (NYSE:BAC). GQG Partners had $871.1 million invested in the company at the end of the quarter. Ric Dillon's Diamond Hill Capital also initiated a $460.3 million position during the quarter. The other funds with brand new BAC positions are Robert Pitts's Steadfast Capital Management, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Peter Seuss's Prana Capital 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 Verizon Communications Inc. (NYSE:VZ), Adobe Inc. (NASDAQ:ADBE), Comcast Corporation (NASDAQ:CMCSA), Netflix, Inc. (NASDAQ:NFLX), The Coca-Cola Company (NYSE:KO), NIKE, Inc. (NYSE:NKE), and Pinduoduo Inc. (NASDAQ:PDD). This group of stocks' market caps are closest to BAC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VZ,67,10502830,2 ADBE,114,11927730,8 CMCSA,84,8831767,2 NFLX,116,15633343,12 KO,62,24683372,2 NKE,82,6285513,7 PDD,54,10528058,20 Average,82.7,12627516,7.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 82.7 hedge funds with bullish positions and the average amount invested in these stocks was $12628 million. That figure was $35340 million in BAC's case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Pinduoduo Inc. (NASDAQ:PDD) is the least popular one with only 54 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 overall hedge fund sentiment score for BAC is 67.7. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on BAC as the stock returned 27.8% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.