In this article we will check out the progression of hedge fund sentiment towards Cummins Inc. (NYSE:CMI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Cummins Inc. (NYSE:CMI) was in 34 hedge funds’ portfolios at the end of the first quarter of 2020. CMI shareholders have witnessed a decrease in hedge fund interest of late. There were 39 hedge funds in our database with CMI positions at the end of the previous quarter. Our calculations also showed that CMI 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.
To most traders, hedge funds are perceived as underperforming, outdated financial vehicles of yesteryear. While there are greater than 8000 funds in operation at present, Our researchers look at the aristocrats of this group, around 850 funds. It is estimated that this group of investors direct most of the hedge fund industry’s total capital, and by paying attention to their highest performing stock picks, Insider Monkey has deciphered several investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Christian Leone of Luxor Capital Group
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the recent hedge fund action regarding Cummins Inc. (NYSE:CMI).
Hedge fund activity in Cummins Inc. (NYSE:CMI)
Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CMI over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Cummins Inc. (NYSE:CMI), with a stake worth $167.1 million reported as of the end of September. Trailing AQR Capital Management was Laurion Capital Management, which amassed a stake valued at $48.4 million. Citadel Investment Group, D E Shaw, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Arjuna Capital allocated the biggest weight to Cummins Inc. (NYSE:CMI), around 1.25% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, earmarking 1 percent of its 13F equity portfolio to CMI.
Because Cummins Inc. (NYSE:CMI) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few fund managers who sold off their entire stakes in the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, worth about $81.1 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $38.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 5 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Cummins Inc. (NYSE:CMI). These stocks are Liberty Broadband Corp (NASDAQ:LBRDK), ING Groep N.V. (NYSE:ING), Splunk Inc (NASDAQ:SPLK), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). This group of stocks’ market valuations match CMI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LBRDK | 45 | 3334060 | -1 |
| ING | 13 | 298860 | -1 |
| SPLK | 37 | 340300 | -1 |
| ALXN | 56 | 3058097 | 8 |
| Average | 37.75 | 1757829 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $1758 million. That figure was $327 million in CMI’s case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 13 bullish hedge fund positions. Cummins Inc. (NYSE:CMI) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on CMI as the stock returned 26.4% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
