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Was The Smart Money Right About CME Group Inc (CME)?

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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards CME Group Inc (NASDAQ:CME).

CME Group Inc (NASDAQ:CME) has seen an increase in hedge fund sentiment lately. CME Group Inc (NASDAQ:CME) was in 62 hedge funds' portfolios at the end of June. The all time high for this statistic is 62. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 60 hedge funds in our database with CME holdings at the end of March. Our calculations also showed that CME isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

William Von Mueffling - Cantillon Capital Management
William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to check out the recent hedge fund action encompassing CME Group Inc (NASDAQ:CME).

Do Hedge Funds Think CME Is A Good Stock To Buy Now?

At the end of June, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CME over the last 24 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, GuardCap Asset Management was the largest shareholder of CME Group Inc (NASDAQ:CME), with a stake worth $798.8 million reported as of the end of June. Trailing GuardCap Asset Management was Cantillon Capital Management, which amassed a stake valued at $369.5 million. Intermede Investment Partners, VGI Partners, and Senator Investment Group 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 GuardCap Asset Management allocated the biggest weight to CME Group Inc (NASDAQ:CME), around 11.53% of its 13F portfolio. VGI Partners is also relatively very bullish on the stock, setting aside 10.25 percent of its 13F equity portfolio to CME.

As aggregate interest increased, key money managers have been driving this bullishness. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, initiated the most outsized position in CME Group Inc (NASDAQ:CME). Senator Investment Group had $119.1 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $2.5 million position during the quarter. The other funds with brand new CME positions are Karim Abbadi and Edward McBride's Centiva Capital, Lee Ainslie's Maverick Capital, and Greg Eisner's Engineers Gate Manager.

Let's now take a look at hedge fund activity in other stocks similar to CME Group Inc (NASDAQ:CME). These stocks are Dell Technologies Inc. (NYSE:DELL), Duke Energy Corporation (NYSE:DUK), Canadian National Railway Company (NYSE:CNI), Truist Financial Corporation (NYSE:TFC), Activision Blizzard, Inc. (NASDAQ:ATVI), CSX Corporation (NASDAQ:CSX), and The Sherwin-Williams Company (NYSE:SHW). This group of stocks' market caps are closest to CME's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DELL,62,5601143,8 DUK,36,566143,2 CNI,40,5310284,4 TFC,39,1019267,3 ATVI,78,3651606,2 CSX,56,4223857,3 SHW,49,2028984,-2 Average,51.4,3200183,2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.4 hedge funds with bullish positions and the average amount invested in these stocks was $3200 million. That figure was $2650 million in CME's case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 36 bullish hedge fund positions. CME Group Inc (NASDAQ:CME) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CME is 68. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and beat the market again by 2.3 percentage points. Unfortunately CME wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CME were disappointed as the stock returned 4.2% since the end of June (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.