The Stocks the Funds Are Buying

We all know which stocks have made Wall Street's Buy List. What I want to know -- and I'm guessing you do, too -- is who's doing the buying. Which funds are buying Wall Street's most popular stocks ... and how does their stock-picking judgment compare with that of our Motley Fool CAPS community?

Here's our latest group of stock contenders:

Sources: Motley Fool CAPS, Yahoo! Finance.

I'm particularly interested in South Financial. Several four-star performers are following this stock, none more intriguing than the no-load FBR Small Cap Financial (FBRSX) fund. Allow me to introduce you.

Managed by David Ellison since the start of 1997, FBR Small Cap Financial seeks bargains among regional banks and other up-and-coming financials. That's a bad business to be in today; small-cap growth is down roughly 5% year to date, according to Morningstar. And yet that's a great number: Category peers, on average, have performed nearly 12 percentage points worse thanks to the collapse of IndyMac, among other problems.

South Financial is a new holding for Ellison, who has a reputation for buying when credit is poor. "Generally, the companies I traffic in, the numbers are coming in and the margins are holding up,'' he told The New York Times in a 2002 interview. ''This is the type of environment where worrying about credit pays off.''

Here's a look at the top five stocks Ellison is holding as of this writing:

Sources: Morningstar, Motley Fool CAPS.

Of these, Motley Fool Income Investor recommendation Annaly Capital Management and its 15.7% divided yield interest me most. Unlike these yields here, I consider Annaly's payout to be sustainable. Management has raised the dividend for 10 straight quarters.

"Annaly is still doing about as well as it's done in a while," wrote Foolish colleague Morgan Housel in reporting a few weeks ago on Annaly's second-quarter earnings. "In fact, earnings are way, way higher than they were last year, before all this chaos erupted. Is this mistaken identity? A once-in-a-lifetime anomaly? Nope. Just management doing its job."

And in more ways than one. Return on equity reached 15.6% over the trailing 12 months, a peak not seen since 2004. Why investors see this performance as worth ignoring -- shares of Annaly are pretty much unchanged before dividends from a year ago -- is beyond me.  

But I'm more interested in what you think. Would you own Annaly Capital Management, or any of the stocks in the FBR Small Cap Financial fund, at today's prices? Log into CAPS today and let us know what you think. It's 100% free to participate.