Cintas Corporation (CTAS) Fell Out Of Favor With Hedge Funds

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Cintas Corporation (NASDAQ:CTAS) and determine whether hedge funds skillfully traded this stock.

Cintas Corporation (NASDAQ:CTAS) has seen a decrease in enthusiasm from smart money lately. Cintas Corporation (NASDAQ:CTAS) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistics is 45. Our calculations also showed that CTAS isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Richard Chilton of Chilton Investment Company

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 go over the fresh hedge fund action surrounding Cintas Corporation (NASDAQ:CTAS).

Hedge fund activity in Cintas Corporation (NASDAQ:CTAS)

At second quarter’s end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the first quarter of 2020. On the other hand, there were a total of 27 hedge funds with a bullish position in CTAS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Chilton Investment Company held the most valuable stake in Cintas Corporation (NASDAQ:CTAS), which was worth $104.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $91 million worth of shares. Alkeon Capital Management, Bristol Gate Capital Partners, and Harbor Spring Capital 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 Bristol Gate Capital Partners allocated the biggest weight to Cintas Corporation (NASDAQ:CTAS), around 4.52% of its 13F portfolio. Ratan Capital Group is also relatively very bullish on the stock, earmarking 4.34 percent of its 13F equity portfolio to CTAS.

Since Cintas Corporation (NASDAQ:CTAS) has witnessed bearish sentiment from the smart money, it’s safe to say that there is a sect of hedgies that elected to cut their full holdings heading into Q3. Interestingly, Renaissance Technologies cut the biggest stake of the 750 funds monitored by Insider Monkey, totaling about $26.9 million in stock, and Robert B. Gillam’s McKinley Capital Management was right behind this move, as the fund cut about $10.5 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 8 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cintas Corporation (NASDAQ:CTAS) but similarly valued. We will take a look at WEC Energy Group, Inc. (NYSE:WEC), The Clorox Company (NYSE:CLX), Verisk Analytics, Inc. (NASDAQ:VRSK), IAC/InterActiveCorp (NASDAQ:IAC), Agilent Technologies Inc. (NYSE:A), Paychex, Inc. (NASDAQ:PAYX), and IQVIA Holdings, Inc. (NYSE:IQV). All of these stocks’ market caps resemble CTAS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.1 hedge funds with bullish positions and the average amount invested in these stocks was $2062 million. That figure was $532 million in CTAS’s case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand WEC Energy Group, Inc. (NYSE:WEC) is the least popular one with only 30 bullish hedge fund positions. Cintas Corporation (NASDAQ:CTAS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CTAS is 25.2. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on CTAS as the stock returned 25.1% since the end of June and outperformed the market by an even larger margin.

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