"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Cathay General Bancorp (NASDAQ:CATY) and see how it was affected.
Is Cathay General Bancorp (NASDAQ:CATY) the right investment to pursue these days? Investors who are in the know are becoming more confident. The number of bullish hedge fund positions moved up by 5 recently. Our calculations also showed that CATY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CATY was in 17 hedge funds' portfolios at the end of the third quarter of 2019. There were 12 hedge funds in our database with CATY holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage 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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the key hedge fund action surrounding Cathay General Bancorp (NASDAQ:CATY).
Hedge fund activity in Cathay General Bancorp (NASDAQ:CATY)
Heading into the fourth quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from the second quarter of 2019. By comparison, 13 hedge funds held shares or bullish call options in CATY a year ago. 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, Millennium Management was the largest shareholder of Cathay General Bancorp (NASDAQ:CATY), with a stake worth $10.3 million reported as of the end of September. Trailing Millennium Management was Balyasny Asset Management, which amassed a stake valued at $5.2 million. Adage Capital Management, Arrowstreet Capital, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Tudor Investment Corp allocated the biggest weight to Cathay General Bancorp (NASDAQ:CATY), around 0.04% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to CATY.
As one would reasonably expect, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the biggest position in Cathay General Bancorp (NASDAQ:CATY). Balyasny Asset Management had $5.2 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $1.1 million investment in the stock during the quarter. The other funds with brand new CATY positions are Michael Gelband's ExodusPoint Capital, Michael Platt and William Reeves's BlueCrest Capital Mgmt., and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Cathay General Bancorp (NASDAQ:CATY) but similarly valued. These stocks are Inphi Corporation (NYSE:IPHI), PotlatchDeltic Corporation (NASDAQ:PCH), Ryder System, Inc. (NYSE:R), and Extended Stay America Inc (NASDAQ:STAY). This group of stocks' market valuations are similar to CATY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IPHI,30,388332,4 PCH,19,327723,7 R,21,356404,0 STAY,25,507430,-3 Average,23.75,394972,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $395 million. That figure was $44 million in CATY's case. Inphi Corporation (NYSE:IPHI) is the most popular stock in this table. On the other hand PotlatchDeltic Corporation (NASDAQ:PCH) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Cathay General Bancorp (NASDAQ:CATY) is even less popular than PCH. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CATY, though not to the same extent, as the stock returned 6.9% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.