Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
CTS Corporation (NYSE:CTS) was in 9 hedge funds' portfolios at the end of the second quarter of 2019. CTS has experienced a decrease in hedge fund sentiment of late. There were 10 hedge funds in our database with CTS holdings at the end of the previous quarter. Our calculations also showed that CTS isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 view the key hedge fund action regarding CTS Corporation (NYSE:CTS).
How have hedgies been trading CTS Corporation (NYSE:CTS)?
Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the first quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in CTS 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, GAMCO Investors was the largest shareholder of CTS Corporation (NYSE:CTS), with a stake worth $60.2 million reported as of the end of March. Trailing GAMCO Investors was Renaissance Technologies, which amassed a stake valued at $8.7 million. Millennium Management, D E Shaw, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that CTS Corporation (NYSE:CTS) has witnessed bearish sentiment from the smart money, it's easy to see that there were a few funds that elected to cut their full holdings heading into Q3. It's worth mentioning that Amy Minella's Cardinal Capital dumped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $11.8 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund said goodbye to about $1.9 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to CTS Corporation (NYSE:CTS). These stocks are California Resources Corporation (NYSE:CRC), PC Connection, Inc. (NASDAQ:CNXN), Axsome Therapeutics, Inc. (NASDAQ:AXSM), and CIM Commercial Trust Corporation (NASDAQ:CMCT). This group of stocks' market caps match CTS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRC,12,115705,-3 CNXN,8,38391,0 AXSM,16,105819,2 CMCT,1,394,0 Average,9.25,65077,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $81 million in CTS's case. Axsome Therapeutics, Inc. (NASDAQ:AXSM) is the most popular stock in this table. On the other hand CIM Commercial Trust Corporation (NASDAQ:CMCT) is the least popular one with only 1 bullish hedge fund positions. CTS Corporation (NYSE:CTS) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on CTS as the stock returned 17.5% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.