Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Is Comerica Incorporated (NYSE:CMA) an excellent stock to buy now? The smart money is taking a pessimistic view. The number of bullish hedge fund positions decreased by 6 in recent months. Our calculations also showed that CMA isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a look at the key hedge fund action encompassing Comerica Incorporated (NYSE:CMA).
How are hedge funds trading Comerica Incorporated (NYSE:CMA)?
Heading into the fourth quarter of 2018, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CMA over the last 13 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Israel Englander’s Millennium Management has the largest position in Comerica Incorporated (NYSE:CMA), worth close to $333.4 million, comprising 0.4% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $100.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw.
Because Comerica Incorporated (NYSE:CMA) has faced falling interest from the entirety of the hedge funds we track, we can see that there were a few fund managers who sold off their entire stakes in the third quarter. At the top of the heap, Robert Pohly’s Samlyn Capital said goodbye to the biggest investment of the 700 funds followed by Insider Monkey, totaling an estimated $25.7 million in stock. Ravi Chopra’s fund, Azora Capital, also dumped its stock, about $21.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 6 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Comerica Incorporated (NYSE:CMA). We will take a look at Discovery, Inc. (NASDAQ:DISCK), Magellan Midstream Partners, L.P. (NYSE:MMP), Ameren Corporation (NYSE:AEE), and Celanese Corporation (NYSE:CE). This group of stocks’ market values match CMA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DISCK | 34 | 1260560 | 4 |
| MMP | 14 | 73929 | 0 |
| AEE | 21 | 684395 | 5 |
| CE | 32 | 1332134 | -1 |
| Average | 25.25 | 837755 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $838 million. That figure was $928 million in CMA’s case. Discovery Communications Inc. (NASDAQ:DISCK) is the most popular stock in this table. On the other hand Magellan Midstream Partners, L.P. (NYSE:MMP) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Comerica Incorporated (NYSE:CMA) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
