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Hedge Funds Kept Piling Into CME Group (CME) During The Crash

Abigail Fisher

In this article you are going to find out whether hedge funds think CME Group Inc (NASDAQ:CME) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

CME Group Inc (NASDAQ:CME) has experienced an increase in hedge fund sentiment recently. CME was in 62 hedge funds' portfolios at the end of the first quarter of 2020. There were 54 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 (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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 44 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_364853" align="aligncenter" width="399"] William Von Mueffling of Cantillon Capital Management[/caption]

William Von Mueffling - Cantillon Capital Management

At Insider Monkey 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 checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“.  We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the fresh hedge fund action surrounding CME Group Inc (NASDAQ:CME).

Hedge fund activity in CME Group Inc (NASDAQ:CME)

At Q1's end, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CME over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, William von Mueffling's Cantillon Capital Management has the largest position in CME Group Inc (NASDAQ:CME), worth close to $317.2 million, amounting to 3.5% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $310.6 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism encompass Andreas Halvorsen's Viking Global, Robert M. P. Luciano's VGI Partners and Guardian Capital's GuardCap Asset Management. In terms of the portfolio weights assigned to each position Stevens Capital Management allocated the biggest weight to CME Group Inc (NASDAQ:CME), around 100% of its 13F portfolio. VGI Partners is also relatively very bullish on the stock, earmarking 21.51 percent of its 13F equity portfolio to CME.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Viking Global, managed by Andreas Halvorsen, established the most outsized position in CME Group Inc (NASDAQ:CME). Viking Global had $294.3 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $19.2 million investment in the stock during the quarter. The following funds were also among the new CME investors: John Overdeck and David Siegel's Two Sigma Advisors, Greg Poole's Echo Street Capital Management, and Ravi Chopra's Azora Capital.

Let's now review hedge fund activity in other stocks similar to CME Group Inc (NASDAQ:CME). These stocks are Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), Dominion Energy Inc. (NYSE:D), Crown Castle International Corp. (REIT) (NYSE:CCI), and Intuit Inc. (NASDAQ:INTU). This group of stocks' market valuations match CME's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VRTX,56,3313662,3 D,34,371177,-3 CCI,40,1640829,2 INTU,54,1557455,0 Average,46,1720781,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $1721 million. That figure was $2266 million in CME's case. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is the most popular stock in this table. On the other hand Dominion Energy Inc. (NYSE:D) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks CME Group Inc (NASDAQ:CME) is more popular among hedge funds. 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 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. Unfortunately CME wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CME were disappointed as the stock returned 3.4% during the second quarter (through May 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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