“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Canadian Imperial Bank of Commerce (NYSE:CM) shareholders have witnessed an increase in support from the world’s most elite money managers recently. CM was in 14 hedge funds’ portfolios at the end of the third quarter of 2018. There were 12 hedge funds in our database with CM holdings at the end of the previous quarter. Our calculations also showed that cm isn’t among the 30 most popular stocks among hedge funds.
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 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s analyze the fresh hedge fund action surrounding Canadian Imperial Bank of Commerce (NYSE:CM).
What does the smart money think about Canadian Imperial Bank of Commerce (NYSE:CM)?
Heading into the fourth quarter of 2018, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the second quarter of 2018. On the other hand, there were a total of 17 hedge funds with a bullish position in CM at the beginning of this year. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Canadian Imperial Bank of Commerce (NYSE:CM) was held by Arrowstreet Capital, which reported holding $166.5 million worth of stock at the end of September. It was followed by AQR Capital Management with a $127.8 million position. Other investors bullish on the company included Renaissance Technologies, Two Sigma Advisors, and Bridgewater Associates.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in Canadian Imperial Bank of Commerce (NYSE:CM). Arrowstreet Capital had $166.5 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also initiated a $1 million position during the quarter. The other funds with brand new CM positions are George Zweig, Shane Haas and Ravi Chander’s Signition LP and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Canadian Imperial Bank of Commerce (NYSE:CM) but similarly valued. These stocks are The Progressive Corporation (NYSE:PGR), Constellation Brands, Inc. (NYSE:STZ), Altaba Inc. (NASDAQ:AABA), and Baxter International Inc. (NYSE:BAX). This group of stocks’ market caps match CM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PGR | 45 | 2625308 | 5 |
| STZ | 61 | 6313926 | -1 |
| AABA | 87 | 16329027 | -8 |
| BAX | 43 | 4390199 | 2 |
| Average | 59 | 7414615 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 59 hedge funds with bullish positions and the average amount invested in these stocks was $7.42 billion. That figure was $496 million in CM’s case. Altaba Inc. (NASDAQ:AABA) is the most popular stock in this table. On the other hand Baxter International Inc. (NYSE:BAX) is the least popular one with only 43 bullish hedge fund positions. Compared to these stocks Canadian Imperial Bank of Commerce (NYSE:CM) is even less popular than BAX. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
