The market has been volatile in the fourth quarter as the Federal Reserve continued its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds' movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of CVB Financial Corp. (NASDAQ:CVBF) and find out how it is affected by hedge funds' moves.
CVB Financial Corp. (NASDAQ:CVBF) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. CVBF was in 9 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 11 hedge funds in our database with CVBF holdings at the end of the previous quarter. Our calculations also showed that CVBF isn't among the 30 most popular stocks among hedge funds.
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' 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's review the new hedge fund action regarding CVB Financial Corp. (NASDAQ:CVBF).
How are hedge funds trading CVB Financial Corp. (NASDAQ:CVBF)?
At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the second quarter of 2018. By comparison, 4 hedge funds held shares or bullish call options in CVBF a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Balyasny Asset Management held the most valuable stake in CVB Financial Corp. (NASDAQ:CVBF), which was worth $16.1 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $3.9 million worth of shares. Moreover, D E Shaw, Renaissance Technologies, and Fisher Asset Management were also bullish on CVB Financial Corp. (NASDAQ:CVBF), allocating a large percentage of their portfolios to this stock.
Judging by the fact that CVB Financial Corp. (NASDAQ:CVBF) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers that decided to sell off their positions entirely in the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the biggest investment of all the hedgies tracked by Insider Monkey, valued at close to $12.6 million in stock. Ken Griffin's fund, Citadel Investment Group, also cut its stock, about $1.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to CVB Financial Corp. (NASDAQ:CVBF). These stocks are Home Bancshares Inc (NASDAQ:HOMB), Perspecta Inc. (NYSE:PRSP), USANA Health Sciences, Inc. (NYSE:USNA), and Stamps.com Inc. (NASDAQ:STMP). All of these stocks' market caps resemble CVBF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HOMB,10,13503,-4 PRSP,37,535499,-5 USNA,19,360175,3 STMP,33,360166,-5 Average,24.75,317336,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $317 million. That figure was $28 million in CVBF's case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand Home Bancshares Inc (NASDAQ:HOMB) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks CVB Financial Corp. (NASDAQ:CVBF) is even less popular than HOMB. Hedge funds dodged a bullet by taking a bearish stance towards CVBF. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately CVBF wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); CVBF investors were disappointed as the stock returned 5.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.