Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards CBOE Holdings, Inc (NASDAQ:CBOE).
CBOE Holdings, Inc (NASDAQ:CBOE) has experienced an increase in hedge fund interest recently. CBOE was in 27 hedge funds’ portfolios at the end of December. There were 26 hedge funds in our database with CBOE positions at the end of the previous quarter. Our calculations also showed that CBOE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Jim Simons of Renaissance Technologies
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. Now we’re going to view the fresh hedge fund action surrounding CBOE Holdings, Inc (NASDAQ:CBOE).
How have hedgies been trading CBOE Holdings, Inc (NASDAQ:CBOE)?
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in CBOE over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of CBOE Holdings, Inc (NASDAQ:CBOE), with a stake worth $546.9 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $147.6 million. D E Shaw, Horizon Asset Management, and Carlson Capital 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 Truvvo Partners allocated the biggest weight to CBOE Holdings, Inc (NASDAQ:CBOE), around 9.62% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, dishing out 1.79 percent of its 13F equity portfolio to CBOE.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in CBOE Holdings, Inc (NASDAQ:CBOE). Balyasny Asset Management had $14.3 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $10.2 million investment in the stock during the quarter. The other funds with brand new CBOE positions are George Soros’s Soros Fund Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Steve Cohen’s Point72 Asset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as CBOE Holdings, Inc (NASDAQ:CBOE) but similarly valued. These stocks are Plains All American Pipeline, L.P. (NYSE:PAA), Galapagos NV (NASDAQ:GLPG), Darden Restaurants, Inc. (NYSE:DRI), and Tenaris S.A. (NYSE:TS). All of these stocks’ market caps are similar to CBOE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PAA | 12 | 168993 | -5 |
| GLPG | 14 | 117885 | 1 |
| DRI | 33 | 730138 | 2 |
| TS | 16 | 368767 | 5 |
| Average | 18.75 | 346446 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $346 million. That figure was $1050 million in CBOE’s case. Darden Restaurants, Inc. (NYSE:DRI) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 12 bullish hedge fund positions. CBOE Holdings, Inc (NASDAQ:CBOE) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately CBOE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CBOE were disappointed as the stock returned -30.9% 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.
Disclosure: None. This article was originally published at Insider Monkey.
