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Did Hedge Funds Make The Right Call On Cullen/Frost Bankers, Inc. (CFR)?

Abigail Fisher

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtCullen/Frost Bankers, Inc. (NYSE:CFR) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

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 First Citizens BancShares Inc. (NASDAQ:FCNCA), The Hanover Insurance Group, Inc. (NYSE:THG), and Switch, Inc. (NYSE:SWCH) to gather more data points. Our calculations also showed that CFR isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we're going to take a peek at the latest hedge fund action regarding Cullen/Frost Bankers, Inc. (NYSE:CFR).

What have hedge funds been doing with Cullen/Frost Bankers, Inc. (NYSE:CFR)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in CFR a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Cullen/Frost Bankers, Inc. (NYSE:CFR) was held by Citadel Investment Group, which reported holding $7.2 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $4.7 million position. Other investors bullish on the company included Millennium Management, AQR Capital Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Swift Run Capital Management allocated the biggest weight to Cullen/Frost Bankers, Inc. (NYSE:CFR), around 0.96% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, setting aside 0.35 percent of its 13F equity portfolio to CFR.

Judging by the fact that Cullen/Frost Bankers, Inc. (NYSE:CFR) has experienced falling interest from hedge fund managers, we can see that there were a few money managers that slashed their entire stakes by the end of the first quarter. At the top of the heap, Carson Yost's Yost Capital Management dumped the biggest stake of the "upper crust" of funds followed by Insider Monkey, valued at an estimated $17.4 million in stock. Ray Dalio's fund, Bridgewater Associates, also said goodbye to its stock, about $1.3 million worth. These transactions are important to note, 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. These stocks are First Citizens BancShares Inc. (NASDAQ:FCNCA), The Hanover Insurance Group, Inc. (NYSE:THG), Switch, Inc. (NYSE:SWCH), and TCF Financial Corporation (NASDAQ:TCF). This group of stocks' market values resemble CFR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCNCA,17,129488,-6 THG,24,134965,3 SWCH,24,394487,6 TCF,19,100615,-5 Average,21,189889,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $40 million in CFR's case. The Hanover Insurance Group, Inc. (NYSE:THG) is the most popular stock in this table. On the other hand First Citizens BancShares Inc. (NASDAQ:FCNCA) is the least popular one with only 17 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. 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on CFR, though not to the same extent, as the stock returned 29.9% since Q1 and outperformed the market.

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

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