Do Hedge Funds Love Community Bank System, Inc. (CBU)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Community Bank System, Inc. (NYSE:CBU) and determine whether the smart money was really smart about this stock.

Community Bank System, Inc. (NYSE:CBU) was in 11 hedge funds’ portfolios at the end of March. CBU investors should be aware of an increase in support from the world’s most elite money managers recently. There were 10 hedge funds in our database with CBU holdings at the end of the previous quarter. Our calculations also showed that CBU 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.

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 58 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.

Fred Cummings of Elizabeth Park Capital

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. With all of this in mind we’re going to review the fresh hedge fund action regarding Community Bank System, Inc. (NYSE:CBU).

What does smart money think about Community Bank System, Inc. (NYSE:CBU)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CBU over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Community Bank System, Inc. (NYSE:CBU) was held by Elizabeth Park Capital Management, which reported holding $4.4 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $1.6 million position. Other investors bullish on the company included Citadel Investment Group, Holocene Advisors, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Elizabeth Park Capital Management allocated the biggest weight to Community Bank System, Inc. (NYSE:CBU), around 3.34% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, earmarking 0.63 percent of its 13F equity portfolio to CBU.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Community Bank System, Inc. (NYSE:CBU) headfirst. Elizabeth Park Capital Management, managed by Fred Cummings, created the most valuable position in Community Bank System, Inc. (NYSE:CBU). Elizabeth Park Capital Management had $4.4 million invested in the company at the end of the quarter. Renaissance Technologies also made a $1 million investment in the stock during the quarter. The other funds with brand new CBU positions are Steve Cohen’s Point72 Asset Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Community Bank System, Inc. (NYSE:CBU) but similarly valued. We will take a look at MSC Industrial Direct Co Inc (NYSE:MSM), SLM Corp (NASDAQ:SLM), Grupo Aeroportuario del Pacifico (NYSE:PAC), and PNM Resources, Inc. (NYSE:PNM). All of these stocks’ market caps resemble CBU’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $282 million. That figure was $12 million in CBU’s case. SLM Corp (NASDAQ:SLM) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico (NYSE:PAC) is the least popular one with only 5 bullish hedge fund positions. Community Bank System, Inc. (NYSE:CBU) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately CBU wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CBU investors were disappointed as the stock returned -2.3% 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 in 2020.

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