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Were Hedge Funds Right About Bank of America Corporation (BAC)?

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  • BAC

In this article we will take a look at whether hedge funds think Bank of America Corporation (NYSE:BAC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Bank of America Corporation (NYSE:BAC) has experienced a decrease in hedge fund sentiment of late. Bank of America Corporation (NYSE:BAC) was in 87 hedge funds' portfolios at the end of June. The all time high for this statistic is 139. There were 97 hedge funds in our database with BAC holdings at the end of March. Our calculations also showed that BAC isn't among the 30 most popular stocks among hedge funds (click for Q2 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Richard Pzena - Pzena Investment Management
Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV 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. Keeping this in mind we're going to analyze the new hedge fund action surrounding Bank of America Corporation (NYSE:BAC).

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

At the end of the second quarter, a total of 87 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BAC over the last 24 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Berkshire Hathaway held the most valuable stake in Bank of America Corporation (NYSE:BAC), which was worth $41646.4 million at the end of the second quarter. On the second spot was GQG Partners which amassed $1206.2 million worth of shares. Diamond Hill Capital, Citadel Investment Group, 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 14.85% of its 13F portfolio. Berkshire Hathaway is also relatively very bullish on the stock, dishing out 14.21 percent of its 13F equity portfolio to BAC.

Because Bank of America Corporation (NYSE:BAC) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedge funds who were dropping their entire stakes by the end of the second quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management cut the largest position of the "upper crust" of funds monitored by Insider Monkey, comprising close to $168.6 million in stock, and Robert Pohly's Samlyn Capital was right behind this move, as the fund dropped about $68.4 million worth. These moves are important to note, as total hedge fund interest was cut by 10 funds by the end of the second quarter.

Let's go over 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 Paypal Holdings Inc (NASDAQ:PYPL), The Home Depot, Inc. (NYSE:HD), The Procter & Gamble Company (NYSE:PG), The Walt Disney Company (NYSE:DIS), ASML Holding N.V. (NASDAQ:ASML), Adobe Inc. (NASDAQ:ADBE), and Exxon Mobil Corporation (NYSE:XOM). 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 PYPL,143,16352523,0 HD,64,4177204,-4 PG,68,6934291,-2 DIS,112,10830152,-22 ASML,44,4323106,9 ADBE,89,13101408,-18 XOM,68,3698096,3 Average,84,8488111,-4.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 84 hedge funds with bullish positions and the average amount invested in these stocks was $8488 million. That figure was $46537 million in BAC's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 44 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 35.5. 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 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on BAC as the stock returned 16.5% since the end of Q2 (through 10/29) 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.