Is Cullen/Frost Bankers, Inc. (NYSE:CFR) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to find the winners in the stock market.
Hedge fund interest in Cullen/Frost Bankers, Inc. (NYSE:CFR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CFR to other stocks including Crown Holdings, Inc. (NYSE:CCK), Royal Gold, Inc (NASDAQ:RGLD), and Jefferies Financial Group Inc. (NYSE:JEF) to get a better sense of its popularity.
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 32 percentage points since May 2014 through March 12, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a look at the latest hedge fund action surrounding Cullen/Frost Bankers, Inc. (NYSE:CFR).
How have hedgies been trading Cullen/Frost Bankers, Inc. (NYSE:CFR)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in CFR 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, Renaissance Technologies was the largest shareholder of Cullen/Frost Bankers, Inc. (NYSE:CFR), with a stake worth $22.8 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $12.7 million. Yost Capital Management, Balyasny Asset Management, and Third Avenue Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Cullen/Frost Bankers, Inc. (NYSE:CFR) has experienced declining sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedgies that slashed their full holdings heading into Q3. Intriguingly, Lee Hicks and Jan Koerner’s Park Presidio Capital cut the biggest stake of all the hedgies followed by Insider Monkey, valued at close to $52.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $32.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Cullen/Frost Bankers, Inc. (NYSE:CFR). We will take a look at Crown Holdings, Inc. (NYSE:CCK), Royal Gold, Inc (NASDAQ:RGLD), Jefferies Financial Group Inc. (NYSE:JEF), and WABCO Holdings Inc. (NYSE:WBC). This group of stocks’ market valuations are closest to CFR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCK | 35 | 718268 | 2 |
| RGLD | 15 | 57935 | -2 |
| JEF | 36 | 607137 | -3 |
| WBC | 14 | 515831 | -1 |
| Average | 25 | 474793 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $475 million. That figure was $71 million in CFR’s case. Jefferies Financial Group Inc. (NYSE:JEF) is the most popular stock in this table. On the other hand WABCO Holdings Inc. (NYSE:WBC) is the least popular one with only 14 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 the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. A few hedge funds were also right about betting on CFR, though not to the same extent, as the stock returned 16.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
