Do Hedge Funds Love Wells Fargo & Company (WFC)?

·5 min read

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Wells Fargo & Company (NYSE:WFC).

Is Wells Fargo & Company (NYSE:WFC) the right pick for your portfolio? Hedge funds were turning less bullish. The number of long hedge fund bets retreated by 6 in recent months. Wells Fargo & Company (NYSE:WFC) was in 88 hedge funds' portfolios at the end of September. The all time high for this statistic is 104. Our calculations also showed that WFC ranked 27th among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 94 hedge funds in our database with WFC positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind we're going to take a gander at the latest hedge fund action regarding Wells Fargo & Company (NYSE:WFC).

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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

At the end of the third quarter, a total of 88 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. By comparison, 90 hedge funds held shares or bullish call options in WFC a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, Eagle Capital Management was the largest shareholder of Wells Fargo & Company (NYSE:WFC), with a stake worth $1566.3 million reported as of the end of September. Trailing Eagle Capital Management was Theleme Partners, which amassed a stake valued at $934.1 million. Pzena Investment Management, Citadel Investment Group, and First Pacific Advisors LLC 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 26.67% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, earmarking 20.17 percent of its 13F equity portfolio to WFC.

Since Wells Fargo & Company (NYSE:WFC) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers who sold off their positions entirely last quarter. It's worth mentioning that Matthew Stadelman's Diamond Hill Capital said goodbye to the largest position of the 750 funds watched by Insider Monkey, worth close to $240 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also sold off its stock, about $97.6 million worth. These moves are important to note, as total hedge fund interest fell by 6 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Wells Fargo & Company (NYSE:WFC) but similarly valued. We will take a look at Merck & Co., Inc. (NYSE:MRK), AstraZeneca plc (NASDAQ:AZN), Novartis AG (NYSE:NVS), McDonald's Corporation (NYSE:MCD), Morgan Stanley (NYSE:MS), Texas Instruments Incorporated (NASDAQ:TXN), and Sea Limited (NYSE:SE). This group of stocks' market caps match WFC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRK,77,4550626,-2 AZN,41,3757394,4 NVS,22,1439973,0 MCD,58,3339098,-8 MS,65,4990950,-4 TXN,40,1938965,-10 SE,117,14135309,13 Average,60,4878902,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 60 hedge funds with bullish positions and the average amount invested in these stocks was $4879 million. That figure was $6188 million in WFC's case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 22 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 59.1. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately WFC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on WFC were disappointed as the stock returned 3.3% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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