Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Cullen/Frost Bankers, Inc. (NYSE:CFR).
Cullen/Frost Bankers, Inc. (NYSE:CFR) was in 20 hedge funds’ portfolios at the end of September. CFR investors should pay attention to an increase in activity from the world’s largest hedge funds of late. There were 18 hedge funds in our database with CFR positions at the end of the previous quarter. Our calculations also showed that CFR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the recent hedge fund action encompassing Cullen/Frost Bankers, Inc. (NYSE:CFR).
Hedge fund activity in Cullen/Frost Bankers, Inc. (NYSE:CFR)
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CFR over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in Cullen/Frost Bankers, Inc. (NYSE:CFR), which was worth $32.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $19.9 million worth of shares. Yost Capital Management, Citadel Investment Group, and AQR Capital Management 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 Yost Capital Management allocated the biggest weight to Cullen/Frost Bankers, Inc. (NYSE:CFR), around 18.8% of its 13F portfolio. Swift Run Capital Management is also relatively very bullish on the stock, dishing out 1.02 percent of its 13F equity portfolio to CFR.
As one would reasonably expect, specific money managers were breaking ground themselves. D E Shaw, managed by David E. Shaw, initiated the most outsized position in Cullen/Frost Bankers, Inc. (NYSE:CFR). D E Shaw had $5.3 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.7 million position during the quarter. The following funds were also among the new CFR investors: Matthew Hulsizer’s PEAK6 Capital Management, Alec Litowitz and Ross Laser’s Magnetar Capital, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s now take a look at hedge fund activity in other stocks similar to Cullen/Frost Bankers, Inc. (NYSE:CFR). These stocks are National Instruments Corporation (NASDAQ:NATI), Hanesbrands Inc. (NYSE:HBI), Curtiss-Wright Corporation (NYSE:CW), and Cousins Properties Incorporated (NYSE:CUZ). This group of stocks’ market values resemble CFR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NATI | 22 | 310660 | 0 |
| HBI | 32 | 672396 | 10 |
| CW | 20 | 391825 | 1 |
| CUZ | 18 | 185225 | -4 |
| Average | 23 | 390027 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $390 million. That figure was $116 million in CFR’s case. Hanesbrands Inc. (NYSE:HBI) is the most popular stock in this table. On the other hand Cousins Properties Incorporated (NYSE:CUZ) is the least popular one with only 18 bullish hedge fund positions. Cullen/Frost Bankers, Inc. (NYSE:CFR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CFR, though not to the same extent, as the stock returned 6.5% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
