Hedge Funds Are Selling CIT Group Inc. (CIT)

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like CIT Group Inc. (NYSE:CIT).

CIT Group Inc. (NYSE:CIT) was in 28 hedge funds’ portfolios at the end of the third quarter of 2016. CIT shareholders have witnessed a decrease in hedge fund interest lately. There were 30 hedge funds in our database with CIT holdings at the end of the previous quarter. At the end of this article we will also compare CIT to other stocks including Lamar Advertising Co (NASDAQ:LAMR), Signet Jewelers Ltd. (NYSE:SIG), and BorgWarner Inc. (NYSE:BWA) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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What does the smart money think about CIT Group Inc. (NYSE:CIT)?

Heading into the fourth quarter of 2016, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 7% dip from one quarter earlier, with CIT’s ownership among hedge funds being at its lowest point in the past five quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC has the biggest position in CIT Group Inc. (NYSE:CIT), worth close to $523.6 million, amounting to 4.3% of its total 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $109.5 million position. Some other members of the smart money that hold long positions consist of Jeffrey Altman’s Owl Creek Asset Management, Jacob Doft’s Highline Capital Management and Matthew Mark’s Jet Capital Investors.

Seeing as CIT Group Inc. (NYSE:CIT) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few fund managers that decided to sell off their full holdings in the third quarter. At the top of the heap, George Soros’ Soros Fund Management dumped the biggest investment of all the hedgies tracked by Insider Monkey, comprising close to $38 million in call options, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund cut a $6.5 million call options position (while retaining the aforementioned $109.5 million long position). These moves are important to note, as total hedge fund interest dropped by 2 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to CIT Group Inc. (NYSE:CIT). These stocks are Lamar Advertising Co (NASDAQ:LAMR), Signet Jewelers Ltd. (NYSE:SIG), BorgWarner Inc. (NYSE:BWA), and iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB). This group of stocks’ market caps are closest to CIT’s market cap.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $796 million. That figure was $1.31 billion in CIT’s case. Signet Jewelers Ltd. (NYSE:SIG) is the most popular stock in this table. On the other hand Lamar Advertising Co (NASDAQ:LAMR) is the least popular one with only 22 bullish hedge fund positions. CIT Group Inc. (NYSE:CIT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SIG might be a better candidate to consider a long position.

Disclosure: None