Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Cincinnati Bell Inc. (NYSE:CBB)? The smart money sentiment can provide an answer to this question.
Cincinnati Bell Inc. (NYSE:CBB) investors should pay attention to an increase in enthusiasm from smart money in recent months. CBB was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. There were 11 hedge funds in our database with CBB holdings at the end of the previous quarter. Our calculations also showed that CBB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the fresh hedge fund action regarding Cincinnati Bell Inc. (NYSE:CBB).
What have hedge funds been doing with Cincinnati Bell Inc. (NYSE:CBB)?
Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CBB over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Mario Gabelli’s GAMCO Investors has the most valuable position in Cincinnati Bell Inc. (NYSE:CBB), worth close to $11 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by D E Shaw, managed by David E. Shaw, which holds a $2.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions consist of Israel Englander’s Millennium Management, Thomas E. Claugus’s GMT Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to Cincinnati Bell Inc. (NYSE:CBB), around 0.09% of its 13F portfolio. Ellington is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to CBB.
As aggregate interest increased, key money managers were breaking ground themselves. GMT Capital, managed by Thomas E. Claugus, initiated the most outsized position in Cincinnati Bell Inc. (NYSE:CBB). GMT Capital had $2.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Howard Marks’s Oaktree Capital Management, Jonathan Soros’s JS Capital, and Ken Griffin’s Citadel Investment Group.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cincinnati Bell Inc. (NYSE:CBB) but similarly valued. We will take a look at On Deck Capital Inc (NYSE:ONDK), Global Water Resources, Inc. (NASDAQ:GWRS), Briggs & Stratton Corporation (NYSE:BGG), and Arlo Technologies, Inc. (NYSE:ARLO). This group of stocks’ market values are closest to CBB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ONDK | 14 | 80339 | -4 |
| GWRS | 4 | 10150 | -1 |
| BGG | 10 | 13142 | -1 |
| ARLO | 11 | 25088 | -3 |
| Average | 9.75 | 32180 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $23 million in CBB’s case. On Deck Capital Inc (NYSE:ONDK) is the most popular stock in this table. On the other hand Global Water Resources, Inc. (NASDAQ:GWRS) is the least popular one with only 4 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CBB as the stock returned 28% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
