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 pay special attention to the hedge fund activity in the small-cap space.
CTS Corporation (NYSE:CTS) was in 10 hedge funds’ portfolios at the end of the first quarter of 2019. CTS investors should be aware of a decrease in support from the world’s most elite money managers lately. There were 12 hedge funds in our database with CTS holdings at the end of the previous quarter. Our calculations also showed that CTS isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a glance at the latest hedge fund action surrounding CTS Corporation (NYSE:CTS).
Hedge fund activity in CTS Corporation (NYSE:CTS)
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in CTS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GAMCO Investors was the largest shareholder of CTS Corporation (NYSE:CTS), with a stake worth $64.7 million reported as of the end of March. Trailing GAMCO Investors was Cardinal Capital, which amassed a stake valued at $11.8 million. Renaissance Technologies, Millennium Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as CTS Corporation (NYSE:CTS) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds that decided to sell off their positions entirely last quarter. At the top of the heap, Michael Platt and William Reeves’s BlueCrest Capital Mgmt. dumped the largest position of the 700 funds watched by Insider Monkey, totaling close to $0.3 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to CTS Corporation (NYSE:CTS). We will take a look at Akebia Therapeutics Inc (NASDAQ:AKBA), National Research Corporation (NASDAQ:NRC), Amphastar Pharmaceuticals Inc (NASDAQ:AMPH), and National Western Life Group, Inc. (NASDAQ:NWLI). This group of stocks’ market caps are closest to CTS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AKBA | 19 | 335767 | -1 |
| NRC | 7 | 34345 | 2 |
| AMPH | 10 | 14602 | 2 |
| NWLI | 9 | 15680 | 0 |
| Average | 11.25 | 100099 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $91 million in CTS’s case. Akebia Therapeutics Inc (NASDAQ:AKBA) is the most popular stock in this table. On the other hand National Research Corporation (NASDAQ:NRC) is the least popular one with only 7 bullish hedge fund positions. CTS Corporation (NYSE:CTS) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CTS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CTS investors were disappointed as the stock returned -4.8% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
