Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is Commerce Bancshares, Inc. (NASDAQ:CBSH) the right pick for your portfolio? Money managers are reducing their bets on the stock. The number of bullish hedge fund bets were trimmed by 2 lately. Our calculations also showed that CBSH 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.
Matthew Hulsizer of PEAK6 Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to analyze the recent hedge fund action encompassing Commerce Bancshares, Inc. (NASDAQ:CBSH).
What have hedge funds been doing with Commerce Bancshares, Inc. (NASDAQ:CBSH)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CBSH over the last 17 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.
Among these funds, AQR Capital Management held the most valuable stake in Commerce Bancshares, Inc. (NASDAQ:CBSH), which was worth $19.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $6.2 million worth of shares. Holocene Advisors, Millennium Management, and Citadel Investment Group 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 Signition LP allocated the biggest weight to Commerce Bancshares, Inc. (NASDAQ:CBSH), around 0.85% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to CBSH.
Seeing as Commerce Bancshares, Inc. (NASDAQ:CBSH) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of fund managers that decided to sell off their full holdings heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $12.8 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund said goodbye to about $1.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Commerce Bancshares, Inc. (NASDAQ:CBSH) but similarly valued. These stocks are Chemed Corporation (NYSE:CHE), Donaldson Company, Inc. (NYSE:DCI), Reliance Steel & Aluminum Co. (NYSE:RS), and First American Financial Corp (NYSE:FAF). This group of stocks’ market values are closest to CBSH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHE | 20 | 388232 | -1 |
| DCI | 21 | 199801 | 5 |
| RS | 22 | 313426 | 3 |
| FAF | 35 | 905288 | 1 |
| Average | 24.5 | 451687 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $452 million. That figure was $30 million in CBSH’s case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand Chemed Corporation (NYSE:CHE) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Commerce Bancshares, Inc. (NASDAQ:CBSH) is even less popular than CHE. Hedge funds clearly dropped the ball on CBSH as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 CBSH as the stock returned 10.5% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
