Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Hedge fund interest in Cullen/Frost Bankers, Inc. (NYSE:CFR) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as InterXion Holding NV (NYSE:INXN), World Wrestling Entertainment, Inc. (NYSE:WWE), and Companhia Siderurgica Nacional (NYSE:SID) to gather more data points. Our calculations also showed that CFR isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most traders, hedge funds are viewed as slow, outdated investment tools of years past. While there are greater than 8000 funds in operation today, Our researchers look at the upper echelon of this group, around 750 funds. These hedge fund managers have their hands on bulk of the hedge fund industry's total asset base, and by monitoring their first-class equity investments, Insider Monkey has identified many investment strategies that have historically outperformed the broader indices. Insider Monkey's flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to check out the recent hedge fund action encompassing Cullen/Frost Bankers, Inc. (NYSE:CFR).
What does smart money think about Cullen/Frost Bankers, Inc. (NYSE:CFR)?
Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CFR over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Yost Capital Management was the largest shareholder of Cullen/Frost Bankers, Inc. (NYSE:CFR), with a stake worth $14.5 million reported as of the end of March. Trailing Yost Capital Management was Renaissance Technologies, which amassed a stake valued at $13.5 million. Two Sigma Advisors, Millennium Management, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Cullen/Frost Bankers, Inc. (NYSE:CFR) has faced declining sentiment from the smart money, we can see that there exists a select few hedgies that decided to sell off their positions entirely in the second quarter. Interestingly, Matthew Hulsizer's PEAK6 Capital Management said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, totaling an estimated $1.6 million in stock. Minhua Zhang's fund, Weld Capital Management, also dumped its stock, about $1.1 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cullen/Frost Bankers, Inc. (NYSE:CFR) but similarly valued. We will take a look at InterXion Holding NV (NYSE:INXN), World Wrestling Entertainment, Inc. (NYSE:WWE), Companhia Siderurgica Nacional (NYSE:SID), and H&R Block, Inc. (NYSE:HRB). This group of stocks' market values match CFR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INXN,34,754902,9 WWE,39,978036,-8 SID,10,37735,2 HRB,25,381222,9 Average,27,537974,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $538 million. That figure was $63 million in CFR's case. World Wrestling Entertainment, Inc. (NYSE:WWE) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 10 bullish hedge fund positions. Cullen/Frost Bankers, Inc. (NYSE:CFR) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CFR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CFR investors were disappointed as the stock returned -4.6% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.