Were Hedge Funds Right About CME Group Inc (CME)?

In this article you are going to find out whether hedge funds think CME Group Inc (NASDAQ:CME) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. 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 predict the winners in the stock market.

CME Group Inc (NASDAQ:CME) has seen a decrease in activity from the world’s largest hedge funds lately. CME Group Inc (NASDAQ:CME) was in 60 hedge funds’ portfolios at the end of June. The all time high for this statistics is 62. There were 62 hedge funds in our database with CME positions at the end of the first quarter. Our calculations also showed that CME isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most traders, hedge funds are perceived as worthless, outdated financial vehicles of years past. While there are greater than 8000 funds trading today, Our researchers hone in on the upper echelon of this club, around 850 funds. These hedge fund managers shepherd most of the smart money’s total capital, and by watching their best equity investments, Insider Monkey has figured out many investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to view the new hedge fund action encompassing CME Group Inc (NASDAQ:CME).

How have hedgies been trading CME Group Inc (NASDAQ:CME)?

At second quarter’s end, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CME over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

More specifically, Cantillon Capital Management was the largest shareholder of CME Group Inc (NASDAQ:CME), with a stake worth $301.2 million reported as of the end of September. Trailing Cantillon Capital Management was D E Shaw, which amassed a stake valued at $268.8 million. GuardCap Asset Management, Renaissance Technologies, 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 VGI Partners allocated the biggest weight to CME Group Inc (NASDAQ:CME), around 11.72% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, earmarking 9.91 percent of its 13F equity portfolio to CME.

Seeing as CME Group Inc (NASDAQ:CME) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few hedge funds that elected to cut their full holdings last quarter. It’s worth mentioning that Brandon Haley’s Holocene Advisors cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $19.2 million in stock. James Morrow’s fund, Callodine Capital Management, also said goodbye to its stock, about $13 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to CME Group Inc (NASDAQ:CME). We will take a look at Micron Technology, Inc. (NASDAQ:MU), Chubb Limited (NYSE:CB), Ecolab Inc. (NYSE:ECL), Takeda Pharmaceutical Company Limited (NYSE:TAK), U.S. Bancorp (NYSE:USB), Applied Materials, Inc. (NASDAQ:AMAT), and Illinois Tool Works Inc. (NYSE:ITW). This group of stocks’ market values are similar to CME’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 47 hedge funds with bullish positions and the average amount invested in these stocks was $2541 million. That figure was $2337 million in CME’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 18 bullish hedge fund positions. CME Group Inc (NASDAQ:CME) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CME is 63.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately CME wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CME were disappointed as the stock returned 3.9% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.