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Hedge Funds Never Been This Bullish On The Charles Schwab Corporation (SCHW)

·6 min read

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended March 31st, so let’s proceed with the discussion of the hedge fund sentiment on The Charles Schwab Corporation (NYSE:SCHW).

The Charles Schwab Corporation (NYSE:SCHW) investors should be aware of an increase in support from the world's most elite money managers lately. 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).

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

David Blood
David Blood

David Blood of Generation Investment Management

At Insider Monkey we leave no stone unturned when looking for 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 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 we're going to take a peek at the latest hedge fund action surrounding The Charles Schwab Corporation (NYSE:SCHW).

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

At first quarter's end, a total of 76 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. By comparison, 62 hedge funds held shares or bullish call options in SCHW a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SCHW A Good Stock To Buy?
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 industrywide interest jumped, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the largest 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 go over hedge fund activity in other stocks - not necessarily in the same industry as The Charles Schwab Corporation (NYSE:SCHW) but similarly valued. These stocks are 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). All of these stocks' market caps are closest to SCHW's market cap.

[table] 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 [/table]

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. 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 still beat the market by 3.3 percentage points. Hedge funds were also right about betting on SCHW as the stock returned 13.7% since the end of Q1 (through 6/11) 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.

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