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Were Hedge Funds Able To Catch The Bank of America Corporation (BAC) Train?

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Debasis Saha
·5 min read
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At Insider Monkey, we pore over the filings of nearly 887 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31st. In this article, we will use that wealth of knowledge to determine whether or not Bank of America Corporation (NYSE:BAC) makes for a good investment right now.

Is Bank of America Corporation (NYSE:BAC) a buy, sell, or hold? Investors who are in the know were turning bullish. The number of long hedge fund bets increased by 11 during the fourth quarter. 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. Our calculations also showed that BAC ranked #22 among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 88 hedge funds in our database with BAC positions at the end of the third quarter.

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).

Och-Ziff Capital Management
Och-Ziff Capital Management

Daniel Och, Founder of OZ Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. With all of this in mind let's take a glance at the recent hedge fund action encompassing Bank of America Corporation (NYSE:BAC).

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

At Q4's end, a total of 99 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the third quarter of 2020. On the other hand, there were a total of 99 hedge funds with a bullish position in BAC a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is BAC A Good Stock To Buy?
Is BAC A Good Stock To Buy?

The largest stake in Bank of America Corporation (NYSE:BAC) was held by Berkshire Hathaway, which reported holding $30616.2 million worth of stock at the end of December. It was followed by GQG Partners with a $871.1 million position. Other investors bullish on the company included Citadel Investment Group, Diamond Hill Capital, and Pzena Investment Management. 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, designating 12.92 percent of its 13F equity portfolio to BAC.

As industrywide interest jumped, some big names have jumped into Bank of America Corporation (NYSE:BAC) headfirst. GQG Partners, managed by Rajiv Jain, assembled the biggest 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 made a $460.3 million investment in the stock 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 also examine hedge fund activity in other stocks similar to Bank of America Corporation (NYSE:BAC). 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 valuations match BAC's market valuation.

[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 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on BAC as the stock returned 29.9% since the end of Q4 (through 4/19) 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.

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