Do Hedge Funds Love Cincinnati Bell Inc. (CBB)?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

One stock that saw an increase in popularity among smart money investors in our database is Cincinnati Bell Inc. (NYSE:CBB), in which 14 funds from our database held shares at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Brookline Bancorp, Inc. (NASDAQ:BRKL), Jumei International Holding Ltd (ADR) (NYSE:JMEI), and Eclipse Resources Corp (NYSE:ECR) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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Keeping this in mind, let’s take a look at the latest action surrounding Cincinnati Bell Inc. (NYSE:CBB).

What have hedge funds been doing with Cincinnati Bell Inc. (NYSE:CBB)?

Heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in Cincinnati Bell, which represents an increase of 27% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in CBB heading into 2016. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, GAMCO Investors, led by Mario Gabelli, holds the largest position in Cincinnati Bell Inc. (NYSE:CBB). GAMCO Investors has a $52.5 million position in the stock, comprising 0.3% of its 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $7.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish encompass Renaissance Technologies, one of the largest hedge funds in the world, Ric Dillon’s Diamond Hill Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now, key hedge funds were leading the bulls’ herd. Ken Griffin’s Citadel Investment Group, established the biggest position in Cincinnati Bell Inc. (NYSE:CBB). Citadel Investment Group had $0.5 million invested in the company at the end of the quarter. Paul Tudor Jones’ Tudor Investment Corp also initiated a $0.4 million position during the quarter. The other funds with brand new CBB positions are Joshua Packwood and Schuster Tanger’s Radix Partners and Matthew Tewksbury’s Stevens Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cincinnati Bell Inc. (NYSE:CBB) but similarly valued. These stocks are Brookline Bancorp, Inc. (NASDAQ:BRKL), Jumei International Holding Ltd (ADR) (NYSE:JMEI), Eclipse Resources Corp (NYSE:ECR), and A. Schulman Inc (NASDAQ:SHLM). This group of stocks’ market valuations are similar to CBB’s market valuation.

As you can see these stocks had an average of 13 funds with bullish positions and the average amount invested in these stocks was $54 million, versus $79 million in CBB’s case. Eclipse Resources Corp (NYSE:ECR) is the most popular stock in this table, while Jumei International Holding Ltd (ADR) (NYSE:JMEI) is the least popular one with only 10 bullish hedge fund positions. Cincinnati Bell Inc. (NYSE:CBB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Eclipse Resources Corp (NYSE:ECR) might be a better candidate to consider taking a long position in.

Disclosure: none