“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Credit Suisse Group AG (NYSE:CS).
Credit Suisse Group AG (NYSE:CS) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Thomson Reuters Corporation (NYSE:TRI), Monster Beverage Corp (NASDAQ:MNST), and Tencent Music Entertainment Group (NYSE:TME) to gather more data points.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Matthew Hulsizer of PEAK6 Capital
Let’s take a look at the fresh hedge fund action surrounding Credit Suisse Group AG (NYSE:CS).
What have hedge funds been doing with Credit Suisse Group AG (NYSE:CS)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CS over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Credit Suisse Group AG (NYSE:CS) was held by Renaissance Technologies, which reported holding $83.3 million worth of stock at the end of March. It was followed by Masters Capital Management with a $39.7 million position. Other investors bullish on the company included Orbis Investment Management, PEAK6 Capital Management, and Two Sigma Advisors.
Judging by the fact that Credit Suisse Group AG (NYSE:CS) has witnessed falling interest from the smart money, we can see that there is a sect of hedgies that slashed their entire stakes heading into Q3. Intriguingly, Mike Masters’s Masters Capital Management dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $21.7 million in call options, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund dropped about $1.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Credit Suisse Group AG (NYSE:CS) but similarly valued. These stocks are Thomson Reuters Corporation (NYSE:TRI), Monster Beverage Corp (NASDAQ:MNST), Tencent Music Entertainment Group (NYSE:TME), and BT Group plc (NYSE:BT). This group of stocks’ market valuations match CS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRI | 17 | 227269 | -2 |
| MNST | 33 | 2067252 | 1 |
| TME | 20 | 424298 | -5 |
| BT | 14 | 39409 | 5 |
| Average | 21 | 689557 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $690 million. That figure was $195 million in CS’s case. Monster Beverage Corp (NASDAQ:MNST) is the most popular stock in this table. On the other hand BT Group plc (NYSE:BT) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Credit Suisse Group AG (NYSE:CS) is even less popular than BT. Hedge funds dodged a bullet by taking a bearish stance towards CS. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CS investors were disappointed as the stock returned 2.7% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
