Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 13.1% in the 2.5 months of 2019 (including dividend payments). Conversely, hedge funds’ 15 preferred S&P 500 stocks generated a return of 19.7% during the same period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like City Holding Company (NASDAQ:CHCO).
Is City Holding Company (NASDAQ:CHCO) the right pick for your portfolio? Money managers are getting more optimistic. The number of bullish hedge fund positions rose by 2 lately. Our calculations also showed that CHCO isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's take a look at the latest hedge fund action regarding City Holding Company (NASDAQ:CHCO).
How have hedgies been trading City Holding Company (NASDAQ:CHCO)?
At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in CHCO over the last 14 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Royce & Associates held the most valuable stake in City Holding Company (NASDAQ:CHCO), which was worth $14.6 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $2.9 million worth of shares. Moreover, AQR Capital Management, D E Shaw, and Citadel Investment Group were also bullish on City Holding Company (NASDAQ:CHCO), allocating a large percentage of their portfolios to this stock.
Now, specific money managers have been driving this bullishness. D E Shaw, managed by D. E. Shaw, initiated the largest position in City Holding Company (NASDAQ:CHCO). D E Shaw had $1 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $0.1 million position during the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as City Holding Company (NASDAQ:CHCO) but similarly valued. We will take a look at Southside Bancshares, Inc. (NASDAQ:SBSI), Talend S.A. (NASDAQ:TLND), ForeScout Technologies, Inc. (NASDAQ:FSCT), and Sandy Spring Bancorp Inc. (NASDAQ:SASR). This group of stocks' market valuations are similar to CHCO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBSI,6,55613,-3 TLND,27,333254,5 FSCT,17,151718,1 SASR,13,65753,1 Average,15.75,151585,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $22 million in CHCO's case. Talend S.A. (NASDAQ:TLND) is the most popular stock in this table. On the other hand Southside Bancshares, Inc. (NASDAQ:SBSI) is the least popular one with only 6 bullish hedge fund positions. City Holding Company (NASDAQ:CHCO) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately CHCO wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); CHCO investors were disappointed as the stock returned 16.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.