Bank of Montreal (USA) (BMO) Downgrade Shrugged Off As Investors Take Solace in Job Cuts, Dividend Hike

Bank of Montreal (USA) (NYSE:BMO) shares are trending today after analysts at TD Securities downgraded the stock to ‘Hold’ from ‘Buy’. The analysts cited softer-than-expected earnings for the company’s second quarter of fiscal year 2016 and moderate growth in Canada’s commercial and personal banking sector as reasons for the ratings change. Despite the downgrade, shares of Bank of Montreal are down just a tick in morning trading, perhaps due to the fact that the financial services company pays an annual dividend that amounts to a 4% yield. The bank recently raised its quarterly dividend to CAD$0.86 per share ($0.66) from the previous CAD$0.84 per share ($0.65). It also announced that it will cut 1,850 jobs or about 4% of its workforce.

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Ackman’s recent Valeant losses). However, it is still good idea to keep an eye on hedge fund activity (see the details here). With this in mind, as the latest round of 13F filings has just ended, let’s examine the smart money sentiment towards Bank of Montreal (USA) (NYSE:BMO).

Bank of Montreal (USA) (NYSE:BMO) shares didn’t see a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged, with the stock being in 12 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Monsanto Company (NYSE:MON), Syngenta AG (ADR) (NYSE:SYT), and Cognizant Technology Solutions Corp (NASDAQ:CTSH) to gather more data points.

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According to Insider Monkey’s hedge fund database, Cliff Asness’ AQR Capital Management has the largest position in Bank of Montreal (USA) (NYSE:BMO), worth close to $78.2 million, accounting for 0.1% of its total 13F portfolio. On AQR Capital Management’s heels is Robert B. Gillam of McKinley Capital Management, with a $20.5 million position; 1% of his fund’s 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions consist of Jim Simons’ Renaissance Technologies, Israel Englander’s Millennium Management, and Paul Orlin and Alex Porter’s Amici Capital.

On the next page we’ll compare the stock to a handful of others with similar market caps.