The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Commerce Bancshares, Inc. (NASDAQ:CBSH), and what that likely means for the prospects of the company and its stock.
Commerce Bancshares, Inc. (NASDAQ:CBSH) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. CBSH was in 12 hedge funds’ portfolios at the end of September. There were 9 hedge funds in our database with CBSH holdings at the end of the previous quarter. Our calculations also showed that CBSH isn’t among the 30 most popular stocks among hedge funds.
If you’d ask most shareholders, hedge funds are assumed to be underperforming, outdated investment tools of the past. While there are more than 8,000 funds in operation today, We hone in on the aristocrats of this group, around 700 funds. These hedge fund managers have their hands on most of the smart money’s total capital, and by keeping an eye on their unrivaled stock picks, Insider Monkey has discovered numerous investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by 6 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.
Cliff Asness of AQR Capital Management
Let’s analyze the recent hedge fund action surrounding Commerce Bancshares, Inc. (NASDAQ:CBSH).
How are hedge funds trading Commerce Bancshares, Inc. (NASDAQ:CBSH)?
At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CBSH over the last 13 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in Commerce Bancshares, Inc. (NASDAQ:CBSH) was held by AQR Capital Management, which reported holding $56.4 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $20.3 million position. Other investors bullish on the company included Citadel Investment Group, Third Avenue Management, and Two Sigma Advisors.
As aggregate interest increased, key hedge funds were breaking ground themselves. Clinton Group, managed by George Hall, created the most valuable position in Commerce Bancshares, Inc. (NASDAQ:CBSH). Clinton Group had $1.1 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser’s Magnetar Capital and Bruce Kovner’s Caxton Associates LP.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Commerce Bancshares, Inc. (NASDAQ:CBSH) but similarly valued. These stocks are National Retail Properties, Inc. (NYSE:NNN), PulteGroup, Inc. (NYSE:PHM), Enel Chile S.A. (NYSE:ENIC), and Axalta Coating Systems Ltd (NYSE:AXTA). This group of stocks’ market values are similar to CBSH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NNN | 11 | 146727 | 0 |
| PHM | 18 | 488381 | -3 |
| ENIC | 4 | 21985 | -2 |
| AXTA | 43 | 2358252 | 3 |
| Average | 19 | 753836 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $754 million. That figure was $110 million in CBSH’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 4 bullish hedge fund positions. Commerce Bancshares, Inc. (NASDAQ:CBSH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AXTA might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
