How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding CME Group Inc (NASDAQ:CME) and determine whether hedge funds had an edge regarding this stock.
CME Group Inc (NASDAQ:CME) has experienced an increase in activity from the world’s largest hedge funds lately. CME Group Inc (NASDAQ:CME) was in 64 hedge funds’ portfolios at the end of September. The all time high for this statistic is 62. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CME isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Peter Rathjens of Arrowstreet Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s view the key hedge fund action regarding CME Group Inc (NASDAQ:CME).
Do Hedge Funds Think CME Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in CME over the last 25 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, GuardCap Asset Management held the most valuable stake in CME Group Inc (NASDAQ:CME), which was worth $778.5 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $330.8 million worth of shares. Intermede Investment Partners, Arrowstreet Capital, and VGI Partners 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 VGI Partners allocated the biggest weight to CME Group Inc (NASDAQ:CME), around 12.72% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, designating 10.72 percent of its 13F equity portfolio to CME.
Consequently, specific money managers were leading the bulls’ herd. Renaissance Technologies, created the biggest position in CME Group Inc (NASDAQ:CME). Renaissance Technologies had $55 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $43.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Ryan Caldwell’s Chiron Investment Management, Peter Seuss’s Prana Capital Management, and Clint Carlson’s Carlson Capital.
Let’s go over hedge fund activity in other stocks similar to CME Group Inc (NASDAQ:CME). We will take a look at Cigna Corporation (NYSE:CI), Westpac Banking Corporation (NYSE:WBK), Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), CSX Corporation (NYSE:CSX), ABB Ltd (NYSE:ABB), BioNTech SE (NASDAQ:BNTX), and Moody’s Corporation (NYSE:MCO). This group of stocks’ market values are similar to CME’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CI | 58 | 2302081 | -5 |
| WBK | 6 | 34160 | 2 |
| PBR | 23 | 3004383 | -2 |
| CSX | 56 | 3915444 | 0 |
| ABB | 19 | 721684 | 4 |
| BNTX | 28 | 689029 | 8 |
| MCO | 58 | 15699733 | 14 |
| Average | 35.4 | 3766645 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.4 hedge funds with bullish positions and the average amount invested in these stocks was $3767 million. That figure was $2686 million in CME’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks CME Group Inc (NASDAQ:CME) is more popular among hedge funds. Our overall hedge fund sentiment score for CME is 87. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on CME as the stock returned 20.9% since the end of September (through 1/31) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
