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JPMorgan Chase & Co. (JPM) vs. Top 20 Hedge Fund Stocks in 2019

Debasis Saha

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like JPMorgan Chase & Co. (NYSE:JPM).

JPMorgan Chase & Co. (NYSE:JPM) was in 84 hedge funds' portfolios at the end of September. JPM has experienced a decrease in hedge fund interest recently. There were 90 hedge funds in our database with JPM holdings at the end of the previous quarter. Our calculations also showed that JPM currently ranks 21st among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

At the moment there are a lot of indicators stock market investors employ to value stocks. Some of the less utilized indicators are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the elite investment managers can trounce the S&P 500 by a superb amount (see the details here).

[caption id="attachment_315178" align="alignnone" width="600"] Warren Buffett of Berkshire Hathaway[/caption]  

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a gander at the fresh hedge fund action regarding JPMorgan Chase & Co. (NYSE:JPM).

How are hedge funds trading JPMorgan Chase & Co. (NYSE:JPM)?

Heading into the fourth quarter of 2019, a total of 84 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards JPM over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is JPM A Good Stock To Buy?

Among these funds, Berkshire Hathaway held the most valuable stake in JPMorgan Chase & Co. (NYSE:JPM), which was worth $7004.3 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $702 million worth of shares. Adage Capital Management, Pzena Investment Management, and Diamond Hill Capital 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 Brave Warrior Capital allocated the biggest weight to JPMorgan Chase & Co. (NYSE:JPM), around 12.73% of its 13F portfolio. Sirios Capital Management is also relatively very bullish on the stock, dishing out 5.69 percent of its 13F equity portfolio to JPM.

Because JPMorgan Chase & Co. (NYSE:JPM) has witnessed falling interest from the smart money, logic holds that there was a specific group of fund managers who sold off their entire stakes in the third quarter. It's worth mentioning that Benjamin A. Smith's Laurion Capital Management dropped the largest position of the 750 funds tracked by Insider Monkey, valued at about $13.5 million in stock, and Jonathan Kolatch's Redwood Capital Management was right behind this move, as the fund dropped about $11.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 6 funds in the third quarter.

Let's check out hedge fund activity in other stocks similar to JPMorgan Chase & Co. (NYSE:JPM). We will take a look at Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), Nestle SA (OTCMKTS:NSRGY), and The Procter & Gamble Company (NYSE:PG). This group of stocks' market valuations match JPM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JNJ,76,7326703,13 WMT,56,5584105,0 NSRGY,4,1831756,0 PG,66,11536685,8 Average,50.5,6569812,5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.5 hedge funds with bullish positions and the average amount invested in these stocks was $6570 million. That figure was $11167 million in JPM's case. Johnson & Johnson (NYSE:JNJ) is the most popular stock in this table. On the other hand Nestle SA (OTCMKTS:NSRGY) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks JPMorgan Chase & Co. (NYSE:JPM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on JPM as the stock returned 44.9% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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