Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards CVB Financial Corp. (NASDAQ:CVBF).
Hedge fund interest in CVB Financial Corp. (NASDAQ:CVBF) 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 Kennametal Inc. (NYSE:KMT), Monro, Inc. (NASDAQ:MNRO), and Old National Bancorp (NYSE:ONB) to gather more data points. Our calculations also showed that CVBF 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.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 take a look at the key hedge fund action surrounding CVB Financial Corp. (NASDAQ:CVBF).
How are hedge funds trading CVB Financial Corp. (NASDAQ:CVBF)?
At Q2's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CVBF over the last 16 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of CVB Financial Corp. (NASDAQ:CVBF), with a stake worth $26.2 million reported as of the end of March. Trailing Citadel Investment Group was Renaissance Technologies, which amassed a stake valued at $10.5 million. Balyasny Asset Management, D E Shaw, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Since CVB Financial Corp. (NASDAQ:CVBF) has faced declining sentiment from the smart money, we can see that there was a specific group of fund managers that slashed their full holdings in the second quarter. Interestingly, Israel Englander's Millennium Management sold off the largest stake of all the hedgies tracked by Insider Monkey, worth close to $1 million in stock. Michael Gelband's fund, ExodusPoint Capital, also said goodbye to its stock, about $0.6 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as CVB Financial Corp. (NASDAQ:CVBF) but similarly valued. We will take a look at Kennametal Inc. (NYSE:KMT), Monro, Inc. (NASDAQ:MNRO), Old National Bancorp (NASDAQ:ONB), and EnerSys (NYSE:ENS). This group of stocks' market valuations are similar to CVBF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KMT,20,321757,0 MNRO,14,237151,-3 ONB,10,19875,1 ENS,16,78159,-4 Average,15,164236,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $164 million. That figure was $61 million in CVBF's case. Kennametal Inc. (NYSE:KMT) is the most popular stock in this table. On the other hand Old National Bancorp (NASDAQ:ONB) is the least popular one with only 10 bullish hedge fund positions. CVB Financial Corp. (NASDAQ:CVBF) 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 CVBF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CVBF investors were disappointed as the stock returned 0.1% 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.