We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Cadence Bancorporation (NYSE:CADE).
Cadence Bancorporation (NYSE:CADE) shareholders have witnessed an increase in hedge fund interest lately. CADE was in 20 hedge funds' portfolios at the end of September. There were 18 hedge funds in our database with CADE holdings at the end of the previous quarter. Our calculations also showed that CADE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_758429" align="aligncenter" width="450"] Ric Dillon of Diamond Hill Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the recent hedge fund action regarding Cadence Bancorporation (NYSE:CADE).
Hedge fund activity in Cadence Bancorporation (NYSE:CADE)
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in CADE a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Ric Dillon's Diamond Hill Capital has the biggest position in Cadence Bancorporation (NYSE:CADE), worth close to $66.3 million, accounting for 0.4% of its total 13F portfolio. The second most bullish fund manager is John Overdeck and David Siegel of Two Sigma Advisors, with a $7.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism include Renaissance Technologies, Israel Englander's Millennium Management and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Cadence Bancorporation (NYSE:CADE), around 0.41% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, dishing out 0.35 percent of its 13F equity portfolio to CADE.
Now, key hedge funds have been driving this bullishness. Renaissance Technologies, assembled the most valuable position in Cadence Bancorporation (NYSE:CADE). Renaissance Technologies had $7.2 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $1.4 million position during the quarter. The other funds with brand new CADE positions are David Andre and Astro Teller's Cerebellum Capital, David E. Shaw's D E Shaw, and Karim Abbadi and Edward McBride's Centiva Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Cadence Bancorporation (NYSE:CADE) but similarly valued. These stocks are Greif, Inc. (NYSE:GEF), CareTrust REIT, Inc. (NASDAQ:CTRE), Select Medical Holdings Corporation (NYSE:SEM), and Option Care Health, Inc. (NASDAQ:BIOS). This group of stocks' market caps match CADE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GEF,14,76629,-7 CTRE,15,106967,-5 SEM,18,110991,1 BIOS,18,72446,3 Average,16.25,91758,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $105 million in CADE's case. Select Medical Holdings Corporation (NYSE:SEM) is the most popular stock in this table. On the other hand Greif, Inc. (NYSE:GEF) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Cadence Bancorporation (NYSE:CADE) is more popular among hedge funds. 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. Unfortunately CADE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CADE were disappointed as the stock returned -4.9% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.