We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Cadence Bancorporation (NYSE:CADE).
Cadence Bancorporation (NYSE:CADE) investors should pay attention to an increase in enthusiasm from smart money in recent months. CADE was in 22 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with CADE positions at the end of the previous quarter. Our calculations also showed that CADE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
Ric Dillon of Diamond Hill Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when 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 view the new hedge fund action regarding Cadence Bancorporation (NYSE:CADE).
What does smart money think about Cadence Bancorporation (NYSE:CADE)?
At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CADE over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Cadence Bancorporation (NYSE:CADE), with a stake worth $54.2 million reported as of the end of September. Trailing Diamond Hill Capital was Millennium Management, which amassed a stake valued at $19.6 million. Azora Capital, Citadel Investment Group, and Renaissance Technologies 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 Forest Hill Capital allocated the biggest weight to Cadence Bancorporation (NYSE:CADE), around 3.49% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, earmarking 2.73 percent of its 13F equity portfolio to CADE.
As one would reasonably expect, some big names were breaking ground themselves. Azora Capital, managed by Ravi Chopra, established the most outsized position in Cadence Bancorporation (NYSE:CADE). Azora Capital had $19.2 million invested in the company at the end of the quarter. Mark Lee’s Forest Hill Capital also made a $10.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Daniel Johnson’s Gillson Capital, David Harding’s Winton Capital Management, and Fred Cummings’s Elizabeth Park Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cadence Bancorporation (NYSE:CADE) but similarly valued. These stocks are First Merchants Corporation (NASDAQ:FRME), Grupo Financiero Galicia S.A. (NASDAQ:GGAL), Banco Macro SA (NYSE:BMA), and Colony Capital Inc (NYSE:CLNY). This group of stocks’ market values resemble CADE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FRME | 12 | 111170 | 2 |
| GGAL | 8 | 29637 | 0 |
| BMA | 7 | 115618 | -5 |
| CLNY | 25 | 353690 | 3 |
| Average | 13 | 152529 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $177 million in CADE’s case. Colony Capital Inc (NYSE:CLNY) is the most popular stock in this table. On the other hand Banco Macro SA (NYSE:BMA) is the least popular one with only 7 bullish hedge fund positions. Cadence Bancorporation (NYSE:CADE) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CADE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CADE were disappointed as the stock returned -65.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
