Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before 2018's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Cboe Global Markets, Inc. (NASDAQ:CBOE) changed recently.
Cboe Global Markets, Inc. (NASDAQ:CBOE) was in 23 hedge funds' portfolios at the end of September. CBOE investors should be aware of a decrease in hedge fund interest in recent months. There were 24 hedge funds in our database with CBOE positions at the end of the previous quarter. Our calculations also showed that CBOE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30570" align="aligncenter" width="478"] James Dinan of York Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we're going to analyze the latest hedge fund action regarding Cboe Global Markets, Inc. (NASDAQ:CBOE).
What does smart money think about Cboe Global Markets, Inc. (NASDAQ:CBOE)?
At Q3's end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the second quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in CBOE a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cboe Global Markets, Inc. (NASDAQ:CBOE) was held by Renaissance Technologies, which reported holding $531.6 million worth of stock at the end of September. It was followed by D E Shaw with a $130.8 million position. Other investors bullish on the company included York Capital Management, Horizon Asset Management, and Millennium Management. In terms of the portfolio weights assigned to each position York Capital Management allocated the biggest weight to Cboe Global Markets, Inc. (NASDAQ:CBOE), around 5.88% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, dishing out 2.21 percent of its 13F equity portfolio to CBOE.
Because Cboe Global Markets, Inc. (NASDAQ:CBOE) has faced declining sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedge funds that elected to cut their positions entirely in the third quarter. At the top of the heap, Doug Silverman and Alexander Klabin's Senator Investment Group said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising about $155.4 million in stock. Keith Meister's fund, Corvex Capital, also sold off its stock, about $24.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Cboe Global Markets, Inc. (NASDAQ:CBOE) but similarly valued. These stocks are Agnico Eagle Mines Limited (NYSE:AEM), Annaly Capital Management, Inc. (NYSE:NLY), Alliant Energy Corporation (NASDAQ:LNT), and Sea Limited (NYSE:SE). This group of stocks' market caps match CBOE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AEM,30,382337,4 NLY,15,97109,-6 LNT,21,704846,-5 SE,64,3339840,4 Average,32.5,1131033,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1131 million. That figure was $1076 million in CBOE's case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Annaly Capital Management, Inc. (NYSE:NLY) is the least popular one with only 15 bullish hedge fund positions. Cboe Global Markets, Inc. (NASDAQ:CBOE) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CBOE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CBOE investors were disappointed as the stock returned 24.2% in 2019 and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.