Hedge Fund Sentiment Is Stagnant On Bank of Montreal (BMO)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Bank of Montreal (NYSE:BMO) based on that data and determine whether they were really smart about the stock.

Bank of Montreal (NYSE:BMO) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of March. At the end of this article we will also compare BMO to other stocks including Enterprise Products Partners L.P. (NYSE:EPD), Orange SA (NYSE:ORAN), and General Mills, Inc. (NYSE:GIS) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 states that pay the most federal taxes to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind let’s review the fresh hedge fund action surrounding Bank of Montreal (NYSE:BMO).

Hedge fund activity in Bank of Montreal (NYSE:BMO)

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in BMO a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paul Marshall and Ian Wace’s Marshall Wace LLP has the largest position in Bank of Montreal (NYSE:BMO), worth close to $53.5 million, accounting for 0.5% of its total 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $40.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers with similar optimism comprise John Overdeck and David Siegel’s Two Sigma Advisors, Ray Dalio’s Bridgewater Associates and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Marshall Wace LLP allocated the biggest weight to Bank of Montreal (NYSE:BMO), around 0.53% of its 13F portfolio. Bridgewater Associates is also relatively very bullish on the stock, setting aside 0.2 percent of its 13F equity portfolio to BMO.

Due to the fact that Bank of Montreal (NYSE:BMO) has experienced declining sentiment from the smart money, it’s easy to see that there exists a select few funds who sold off their entire stakes in the first quarter. At the top of the heap, George Zweig, Shane Haas and Ravi Chander’s Signition LP dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, worth about $1 million in stock, and David Andre and Astro Teller’s Cerebellum Capital was right behind this move, as the fund dumped about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Bank of Montreal (NYSE:BMO). These stocks are Enterprise Products Partners L.P. (NYSE:EPD), Orange SA (NYSE:ORAN), General Mills, Inc. (NYSE:GIS), and Eaton Corporation plc (NYSE:ETN). This group of stocks’ market caps are closest to BMO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $436 million. That figure was $151 million in BMO’s case. General Mills, Inc. (NYSE:GIS) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 5 bullish hedge fund positions. Bank of Montreal (NYSE:BMO) 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately BMO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BMO investors were disappointed as the stock returned 9% 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.