Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish 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.
Is CME Group Inc (NASDAQ:CME) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
CME Group Inc (NASDAQ:CME) investors should pay attention to an increase in hedge fund interest recently. CME was in 54 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 52 hedge funds in our database with CME holdings at the end of the previous quarter. Our calculations also showed that CME 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 Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a peek at the recent hedge fund action surrounding CME Group Inc (NASDAQ:CME).
How are hedge funds trading CME Group Inc (NASDAQ:CME)?
Heading into the first quarter of 2020, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the third quarter of 2019. By comparison, 50 hedge funds held shares or bullish call options in CME a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in CME Group Inc (NASDAQ:CME), which was worth $428.4 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $369 million worth of shares. VGI Partners, AQR Capital Management, and Citadel Investment Group 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 VGI Partners allocated the biggest weight to CME Group Inc (NASDAQ:CME), around 17.54% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, earmarking 8.84 percent of its 13F equity portfolio to CME.
Now, specific money managers have been driving this bullishness. Ako Capital, managed by Nicolai Tangen, initiated the largest position in CME Group Inc (NASDAQ:CME). Ako Capital had $147.7 million invested in the company at the end of the quarter. Peter Seuss’s Prana Capital Management also made a $37.4 million investment in the stock during the quarter. The other funds with brand new CME positions are Clint Carlson’s Carlson Capital, Bernard Selz’s Selz Capital, and Sander Gerber’s Hudson Bay Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to CME Group Inc (NASDAQ:CME). These stocks are Banco Bradesco SA (NYSE:BBD), ConocoPhillips (NYSE:COP), Chubb Limited (NYSE:CB), and PNC Financial Services Group Inc. (NYSE:PNC). This group of stocks’ market values resemble CME’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BBD | 18 | 661816 | 1 |
| COP | 62 | 2437765 | -8 |
| CB | 24 | 588256 | -3 |
| PNC | 42 | 2157090 | 0 |
| Average | 36.5 | 1461232 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1461 million. That figure was $2402 million in CME’s case. ConocoPhillips (NYSE:COP) is the most popular stock in this table. On the other hand Banco Bradesco SA (NYSE:BBD) is the least popular one with only 18 bullish hedge fund positions. CME Group Inc (NASDAQ:CME) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on CME as the stock returned 2.1% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
