Investing

Two Sigma Sells These Stocks Amidst Departure of Billionaire Founders

Will Ashworth

Published: January 28, 2025 10:45 am

Two Sigma Investments founders John Overdeck and David Siegel are worth an estimated $14 billion. The duo founded the company in 2001. In August 2024, they stepped down as co-CEOs, replaced by the company’s chief business officer, Carter Lyons, and Scott Hoffman, former chief administrative officer and general counsel of Lazard.

“The founders disagreed over myriad matters related to operations — including organizational and succession planning, defining roles and responsibilities for top executives, and the firm’s design and management structure, according to the filing,” Bloomberg reported on Jan. 9.

“Two Sigma’s biggest funds, Spectrum and Absolute Return Enhanced, respectively returned 10.9% and 14.3% last year, one of the people said. The funds mostly make quant equity wagers but also invest in other strategies.”

According to Bloomberg’s reporting, the two founders are headed to arbitration to try to settle their disagreements. 

At the same time as the founders stepped down in August, the firm made some changes in Q3 2024 to its large, $46 billion portfolio. 

Out were Intel (NASDAQ:INTC) and Johnson & Johnson (NYSE:JNJ). Bank of America (NYSE:BAC), one of America’s largest banks, took their place among the 3,000+ securities held.

Here’s why.     

Key Points About This Article:

• Despite Two Sigma Investments feuding billionaire founders, it managed to make some significant moves in Q3 2024. 
• It closed out positions in excess of $100 million in both Intel (NASDAQ:INTC) and Johnson & Johnson (NYSE:JNJ) in third quarter. 
• It rolled the proceeds into Bank of America (NYSE:BAC), which overnight became the hedge fund’s largest bank stock.
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Intel Goes Away

Two Sigma uses sophisticated algorithms to power its trading. In addition to the $46 billion in its latest 13F holdings report, it also manages an additional $40 billion for some very wealthy clients.

With 3,085 securities held as of Sept. 30, no position accounts for more than 1% of its assets except for the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) at 1.09%. In the third quarter the hedge fund cut its SPY weight by 237 basis points from 3.46% as of June 30.  

Given the algorithmic nature of its trading, it  suggests that the S&P 500 has gotten quite expensive, at least for the trading models anyway.

Between options and bonds owned in the portfolio, it’s not a straightforward task finding material stock moves, whether it be stock sales or purchases. However, of the equities held by Two Sigma in the third quarter, Intel and Johnson & Johnson stand out.   

The former accounted for 0.37% of the portfolio at the end of Q2 2024, up from 0.19% in the previous quarter. The hedge fund added 3.32 million shares bringing its total to 5.19 million. It dumped them all in the third quarter. 

Intel was and is significantly underperforming its peers, both financially and in the market. The last straw had to have been the Aug. 2 announcement by the chip maker that it was cutting 15% of its jobs, suspending its dividend, and forecasting lower than expected Q3 2024 results. Its shares lost 26% on the news. 

Since the Aug. 2 news, its shares have moved sideways. The shares are likely dead money until a successor is named and investors like the choice.

No More J&J Either

As for healthcare, Two Sigma dumped its entire position in Johnson & Johnson in the third quarter, selling 649,754 shares for potential proceeds in excess of $100 million. The pharmaceutical and medical technologies business was the firm’s 110th largest position as of June 30. 

It first acquired JNJ stock in Q2 2014. The estimated average price paid according to WhaleWisdom is $153.25. Its shares are currently below that. If I had to guess, the algorithmic modeling likely moved in and out of the position over the past decade, squeezing trading profits out of those moves. 

The shares hit a 52-week high of $168.85 in early September. I wouldn’t be surprised if Two Sigma sold its JNJ at or near this high. It’s been dead money over the past five years, down 1%. 

Combined with the Intel sale, the hedge fund generated over $200 million during the third quarter from closing out the two positions.

It rolled the proceeds into Bank of America.

Why Bank of America?

In the third quarter, Two Sigma purchased 5.68 million shares of BAC stock at an average price of $39.96. The move makes Bank of America the hedge fund’s 31st-largest position with a 0.49% weighting. Of the top 100 positions in the portfolio, 96 are stocks. All have market values of at least $100 million. 

Bank of America isn’t the largest financial services stock, but it is the hedge fund’s most significant bank holding. The next largest position is Wells Fargo (NYSE:WFC) in 45th spot (0.17% weight) and that’s it for the top 100. That’s just two out of 13 financial services stocks in the top 100 holdings. 

Two things come to mind.

First, it doesn’t see much to like about bank stocks at this point, or it would own more in the top 100. Secondly, BAC, and WFC to a lesser extent, are the large-cap bank stocks to buy if you are bullish about America’s largest lending institutions. 

Analysts are generally optimistic about Bank of America’s future. Of the 24 covering its stock, 20 rate it a Buy, with a target price of $53, above its current share price. The analyst earnings per share estimate for 2025 and 2026 are $3.71 and $4.37, respectively. It trades at a reasonable 10.7 times the 2026 estimate. 

Recently, Donald Trump alleged that the big banks, including Bank of America, discriminate against conservative voters, suggesting that they are purposely not lending to this particular group of people.  

As the saying goes, “It’s a nothing burger.”

At least in the eyes of Two Sigma, one of the largest hedge funds in the U.S., Bank of America is a stock worth owning.