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Were Hedge Funds Right About CME Group Inc (CME)?

Reymerlyn Martin

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article, we look at what those funds think of CME Group Inc (NASDAQ:CME) based on that data.

Is CME Group Inc (NASDAQ:CME) a bargain? Hedge funds are getting more bullish. The number of bullish hedge fund positions increased by 2 recently. Our calculations also showed that CME isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

According to most traders, hedge funds are assumed to be unimportant, outdated investment vehicles of years past. While there are over 8000 funds in operation at the moment, We look at the masters of this group, approximately 850 funds. These investment experts shepherd the majority of the smart money's total asset base, and by keeping track of their best stock picks, Insider Monkey has figured out numerous investment strategies that have historically outperformed the broader indices. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_364853" align="aligncenter" width="400"] William Von Mueffling of Cantillon Capital Management[/caption]

William Von Mueffling - Cantillon Capital Management

With all of this in mind let's take a glance at the latest hedge fund action regarding CME Group Inc (NASDAQ:CME).

How are hedge funds trading CME Group Inc (NASDAQ:CME)?

At Q4's end, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CME over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CME A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in CME Group Inc (NASDAQ:CME), which was worth $428.4 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $369 million worth of shares. VGI Partners, AQR Capital Management, and Citadel 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 VGI Partners allocated the biggest weight to CME Group Inc (NASDAQ:CME), around 17.54% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, dishing out 8.84 percent of its 13F equity portfolio to CME.

As aggregate interest increased, specific money managers were leading the bulls' herd. Ako Capital, managed by Nicolai Tangen, established the most outsized position in CME Group Inc (NASDAQ:CME). Ako Capital had $147.7 million invested in the company at the end of the quarter. Peter Seuss's Prana Capital Management also initiated a $37.4 million position during the quarter. The following funds were also among the new CME investors: Clint Carlson's Carlson Capital, Bernard Selz's Selz Capital, and Sander Gerber's Hudson Bay Capital Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as CME Group Inc (NASDAQ:CME) but similarly valued. We will take a look at Banco Bradesco SA (NYSE:BBD), ConocoPhillips (NYSE:COP), Chubb Limited (NYSE:CB), and PNC Financial Services Group Inc. (NYSE:PNC). This group of stocks' market values are closest to CME's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBD,18,661816,1 COP,62,2437765,-8 CB,24,588256,-3 PNC,42,2157090,0 Average,36.5,1461232,-2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1461 million. That figure was $2402 million in CME's case. ConocoPhillips (NYSE:COP) is the most popular stock in this table. On the other hand Banco Bradesco SA (NYSE:BBD) is the least popular one with only 18 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately CME wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CME were disappointed as the stock returned -13.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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