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 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Cummins Inc. (NYSE:CMI) and determine whether the smart money was really smart about this stock.
Cummins Inc. (NYSE:CMI) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 45. CMI has experienced an increase in hedge fund interest lately. There were 34 hedge funds in our database with CMI holdings at the end of March. Our calculations also showed that CMI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a glance at the new hedge fund action regarding Cummins Inc. (NYSE:CMI).
How have hedgies been trading Cummins Inc. (NYSE:CMI)?
At the end of the second quarter, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the first quarter of 2020. By comparison, 45 hedge funds held shares or bullish call options in CMI a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Cummins Inc. (NYSE:CMI), which was worth $128.6 million at the end of the third quarter. On the second spot was Laurion Capital Management which amassed $57.4 million worth of shares. Citadel Investment Group, Two Sigma Advisors, and Impala Asset Management 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 Impala Asset Management allocated the biggest weight to Cummins Inc. (NYSE:CMI), around 2.5% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, setting aside 1.64 percent of its 13F equity portfolio to CMI.
As aggregate interest increased, key money managers were leading the bulls’ herd. Impala Asset Management, managed by Robert Bishop, assembled the most valuable position in Cummins Inc. (NYSE:CMI). Impala Asset Management had $21.9 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $12.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Renaissance Technologies, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cummins Inc. (NYSE:CMI) but similarly valued. These stocks are Schlumberger Limited. (NYSE:SLB), Johnson Controls International plc (NYSE:JCI), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), RingCentral Inc (NYSE:RNG), PPG Industries, Inc. (NYSE:PPG), and ANSYS, Inc. (NASDAQ:ANSS). This group of stocks’ market caps are similar to CMI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLB | 53 | 932470 | 4 |
| JCI | 28 | 1099174 | -9 |
| FMS | 6 | 11727 | -4 |
| WLTW | 49 | 2288145 | 6 |
| RNG | 62 | 3647093 | -5 |
| PPG | 36 | 261423 | 1 |
| ANSS | 40 | 1322878 | 9 |
| Average | 39.1 | 1366130 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.1 hedge funds with bullish positions and the average amount invested in these stocks was $1366 million. That figure was $359 million in CMI’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 6 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 overall hedge fund sentiment score for CMI is 62.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on CMI as the stock returned 20.4% since the end of June and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
