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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Wells Fargo & Company (NYSE:WFC) to find out whether there were any major changes in hedge funds' views.
Wells Fargo & Company (NYSE:WFC) was in 96 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 104. WFC investors should pay attention to a decrease in hedge fund sentiment recently. There were 99 hedge funds in our database with WFC holdings at the end of December. Our calculations also showed that WFC ranked 25th 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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was 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). So you can still find a lot of gems by following hedge funds' moves today.
Ken Griffin of Citadel Investment Group
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Do Hedge Funds Think WFC Is A Good Stock To Buy Now?
At Q1's end, a total of 96 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WFC over the last 23 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Eagle Capital Management was the largest shareholder of Wells Fargo & Company (NYSE:WFC), with a stake worth $1680 million reported as of the end of March. Trailing Eagle Capital Management was Pzena Investment Management, which amassed a stake valued at $788.3 million. Theleme Partners, D E Shaw, and Citadel Investment Group 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 Theleme Partners allocated the biggest weight to Wells Fargo & Company (NYSE:WFC), around 25.66% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, designating 20.64 percent of its 13F equity portfolio to WFC.
Since Wells Fargo & Company (NYSE:WFC) has experienced declining sentiment from the smart money, it's easy to see that there is a sect of funds that elected to cut their entire stakes by the end of the first quarter. Interestingly, Snehal Amin's Windacre Partnership dropped the largest stake of the 750 funds watched by Insider Monkey, comprising close to $369.5 million in stock. John Overdeck and David Siegel's fund, Two Sigma Advisors, also dumped its stock, about $278.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds by the end of the first quarter.
Let's go over hedge fund activity in other stocks similar to Wells Fargo & Company (NYSE:WFC). We will take a look at Danaher Corporation (NYSE:DHR), Medtronic plc (NYSE:MDT), Novo Nordisk A/S (NYSE:NVO), Costco Wholesale Corporation (NASDAQ:COST), T-Mobile US, Inc. (NASDAQ:TMUS), Citigroup Inc. (NYSE:C), and Royal Dutch Shell plc (NYSE:RDS). This group of stocks' market caps are closest to WFC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DHR,81,5796963,0 MDT,65,3627546,6 NVO,23,2929727,0 COST,56,4014769,-5 TMUS,98,9055738,-5 C,90,6938143,-5 RDS,36,2190186,2 Average,64.1,4936153,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 64.1 hedge funds with bullish positions and the average amount invested in these stocks was $4936 million. That figure was $7455 million in WFC's case. T-Mobile US, Inc. (NASDAQ:TMUS) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 23 bullish hedge fund positions. Wells Fargo & Company (NYSE:WFC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WFC is 78.4. 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 WFC as the stock returned 17.2% 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.