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 Canadian Imperial Bank of Commerce (NYSE:CM) and determine whether hedge funds had an edge regarding this stock.
Canadian Imperial Bank of Commerce (NYSE:CM) was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. CM investors should pay attention to a decrease in hedge fund sentiment of late. There were 14 hedge funds in our database with CM positions at the end of the previous quarter. Our calculations also showed that CM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
James Dondero of Highland Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the fresh hedge fund action regarding Canadian Imperial Bank of Commerce (NYSE:CM).
How have hedgies been trading Canadian Imperial Bank of Commerce (NYSE:CM)?
At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in CM a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Canadian Imperial Bank of Commerce (NYSE:CM), with a stake worth $71.4 million reported as of the end of September. Trailing Renaissance Technologies was Galibier Capital Management, which amassed a stake valued at $27.8 million. Marshall Wace LLP, GLG Partners, and Bridgewater Associates 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 Galibier Capital Management allocated the biggest weight to Canadian Imperial Bank of Commerce (NYSE:CM), around 12.12% of its 13F portfolio. Bridgewater Associates is also relatively very bullish on the stock, designating 0.16 percent of its 13F equity portfolio to CM.
Since Canadian Imperial Bank of Commerce (NYSE:CM) has witnessed a decline in interest from hedge fund managers, logic holds that there were a few fund managers who were dropping their entire stakes heading into Q4. At the top of the heap, Mika Toikka’s AlphaCrest Capital Management sold off the largest investment of the 750 funds watched by Insider Monkey, worth an estimated $1.5 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund cut about $0.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to Canadian Imperial Bank of Commerce (NYSE:CM). We will take a look at Brown-Forman Corporation (NYSE:BF), Cognizant Technology Solutions Corp (NASDAQ:CTSH), Travelers Companies Inc (NYSE:TRV), and DuPont de Nemours Inc (NYSE:DD). This group of stocks’ market values match CM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BF | 28 | 482273 | 5 |
| CTSH | 38 | 2225496 | -5 |
| TRV | 29 | 481539 | -10 |
| DD | 54 | 2411525 | -14 |
| Average | 37.25 | 1400208 | -6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.25 hedge funds with bullish positions and the average amount invested in these stocks was $1400 million. That figure was $145 million in CM’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Brown-Forman Corporation (NYSE:BF) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Canadian Imperial Bank of Commerce (NYSE:CM) is even less popular than BF. Hedge funds dodged a bullet by taking a bearish stance towards CM. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately CM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CM investors were disappointed as the stock returned 17.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Follow Canadian Imperial Bank Commerce (NYSE:CM)
Follow Canadian Imperial Bank Commerce (NYSE:CM)
Disclosure: None. This article was originally published at Insider Monkey.
