"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards BanColombia S.A. (NYSE:CIB).
BanColombia S.A. (NYSE:CIB) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of the third quarter of 2018. At the end of this article we will also compare CIB to other stocks including Molson Coors Brewing Company (NYSE:TAP), Alliant Energy Corporation (NYSE:LNT), and Cabot Oil & Gas Corporation (NYSE:COG) to get a better sense of its popularity.
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' 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 18 percentage points since May 2014 through December 3, 2018 (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.
We're going to take a look at the key hedge fund action surrounding BanColombia S.A. (NYSE:CIB).
How have hedgies been trading BanColombia S.A. (NYSE:CIB)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, no change from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CIB over the last 13 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in BanColombia S.A. (NYSE:CIB) was held by Polaris Capital Management, which reported holding $81 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $10.3 million position. Other investors bullish on the company included Bailard Inc, Orbis Investment Management, and Millennium Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: D E Shaw. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let's also examine hedge fund activity in other stocks similar to BanColombia S.A. (NYSE:CIB). These stocks are Molson Coors Brewing Company (NYSE:TAP), Alliant Energy Corporation (NYSE:LNT), Cabot Oil & Gas Corporation (NYSE:COG), and American Financial Group (NYSE:AFG). This group of stocks' market caps resemble CIB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TAP,31,557374,12 LNT,20,327530,4 COG,28,1032899,3 AFG,24,333576,7 Average,25.75,562845,6.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $563 million. That figure was $102 million in CIB's case. Molson Coors Brewing Company (NYSE:TAP) is the most popular stock in this table. On the other hand Alliant Energy Corporation (NYSE:LNT) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks BanColombia S.A. (NYSE:CIB) is even less popular than LNT. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.