Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Bank of Montreal (NYSE:BMO).
Is Bank of Montreal (NYSE:BMO) undervalued? Hedge funds are becoming less hopeful. The number of bullish hedge fund bets dropped by 2 in recent months. Our calculations also showed that BMO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). BMO was in 13 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 15 hedge funds in our database with BMO positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most stock holders, hedge funds are assumed to be underperforming, old investment vehicles of the past. While there are over 8000 funds with their doors open at present, We hone in on the masters of this club, around 850 funds. Most estimates calculate that this group of people direct the lion’s share of all hedge funds’ total asset base, and by paying attention to their first-class stock picks, Insider Monkey has determined many investment strategies that have historically surpassed the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a look at the recent hedge fund action regarding Bank of Montreal (NYSE:BMO).
How have hedgies been trading Bank of Montreal (NYSE:BMO)?
At Q4’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in BMO over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Bank of Montreal (NYSE:BMO) was held by D E Shaw, which reported holding $74.8 million worth of stock at the end of September. It was followed by GLG Partners with a $35.6 million position. Other investors bullish on the company included Renaissance Technologies, Two Sigma Advisors, and Bridgewater Associates. In terms of the portfolio weights assigned to each position Signition LP allocated the biggest weight to Bank of Montreal (NYSE:BMO), around 5.14% of its 13F portfolio. Cerebellum Capital is also relatively very bullish on the stock, dishing out 0.18 percent of its 13F equity portfolio to BMO.
Due to the fact that Bank of Montreal (NYSE:BMO) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of funds that elected to cut their entire stakes last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $203.1 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $2 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Bank of Montreal (NYSE:BMO). We will take a look at Marriott International Inc (NYSE:MAR), Phillips 66 (NYSE:PSX), Relx PLC (NYSE:RELX), and ICICI Bank Limited (NYSE:IBN). This group of stocks’ market valuations are closest to BMO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MAR | 37 | 2944131 | -8 |
| PSX | 46 | 944856 | 10 |
| RELX | 7 | 99457 | 1 |
| IBN | 29 | 1107865 | 1 |
| Average | 29.75 | 1274077 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1274 million. That figure was $225 million in BMO’s case. Phillips 66 (NYSE:PSX) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 7 bullish hedge fund positions. Bank of Montreal (NYSE:BMO) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately BMO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BMO investors were disappointed as the stock returned -31.1% 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
