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CME Group Inc (CME): Hedge Fund Sentiment Bounced Back From All Time Low

Abigail Fisher

We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds' top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like CME Group Inc (NASDAQ:CME).

CME Group Inc (NASDAQ:CME) was in 46 hedge funds' portfolios at the end of the third quarter of 2019. CME has experienced an increase in enthusiasm from smart money of late. There were 39 hedge funds in our database with CME positions at the end of the previous quarter. Our calculations also showed that CME 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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_673972" align="aligncenter" width="473"] Blair Levinsky of Waratah Capital Advisors[/caption]

Blair Levinsky of Waratah Capital Advisors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the recent hedge fund action encompassing CME Group Inc (NASDAQ:CME).

What have hedge funds been doing with CME Group Inc (NASDAQ:CME)?

At Q3's end, a total of 46 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 CME over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

CME_nov2019

When looking at the institutional investors followed by Insider Monkey, William von Mueffling's Cantillon Capital Management has the largest position in CME Group Inc (NASDAQ:CME), worth close to $397.1 million, comprising 3.9% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $342.8 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Ken Griffin's Citadel Investment Group, Robert M. P. Luciano's VGI Partners and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position VGI Partners allocated the biggest weight to CME Group Inc (NASDAQ:CME), around 19.48% of its portfolio. GuardCap Asset Management is also relatively very bullish on the stock, dishing out 7.91 percent of its 13F equity portfolio to CME.

As industrywide interest jumped, specific money managers have jumped into CME Group Inc (NASDAQ:CME) headfirst. Interval Partners, managed by Gregg Moskowitz, created the largest position in CME Group Inc (NASDAQ:CME). Interval Partners had $2.2 million invested in the company at the end of the quarter. David Costen Haley's HBK Investments also made a $2.1 million investment in the stock during the quarter. The following funds were also among the new CME investors: Jaime Sterne's Skye Global Management, Israel Englander's Millennium Management, and Brad Dunkley and Blair Levinsky's Waratah Capital Advisors.

Let's now take a look at hedge fund activity in other stocks similar to CME Group Inc (NASDAQ:CME). These stocks are The Goldman Sachs Group, Inc. (NYSE:GS), Chubb Limited (NYSE:CB), Sony Corporation (NYSE:SNE), and Ambev SA (NYSE:ABEV). This group of stocks' market values are closest to CME's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GS,72,8237468,11 CB,26,612921,1 SNE,26,783005,-9 ABEV,18,384746,2 Average,35.5,2504535,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $2505 million. That figure was $2245 million in CME's case. The Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand Ambev SA (NYSE:ABEV) 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. 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 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately CME wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CME were disappointed as the stock returned -2.1% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.

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