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Did Hedge Funds Make The Right Call On Cadence Bancorporation (CADE) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtCadence Bancorporation (NYSE:CADE) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Cadence Bancorporation (NYSE:CADE) a buy, sell, or hold? Hedge funds were becoming more confident. The number of bullish hedge fund bets rose by 7 in recent months. Our calculations also showed that CADE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the new hedge fund action regarding Cadence Bancorporation (NYSE:CADE).

How have hedgies been trading Cadence Bancorporation (NYSE:CADE)?

At Q1’s end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CADE over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is CADE A Good Stock To Buy?

The largest stake in Cadence Bancorporation (NYSE:CADE) was held by Diamond Hill Capital, which reported holding $17.4 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $7.6 million position. Other investors bullish on the company included Arrowstreet Capital, Forest Hill Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Forest Hill Capital allocated the biggest weight to Cadence Bancorporation (NYSE:CADE), around 3.05% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, dishing out 1.12 percent of its 13F equity portfolio to CADE.

As one would reasonably expect, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Cadence Bancorporation (NYSE:CADE). Arrowstreet Capital had $6.6 million invested in the company at the end of the quarter. Richard Chilton’s Chilton Investment Company also initiated a $1.3 million position during the quarter. The following funds were also among the new CADE investors: Greg Eisner’s Engineers Gate Manager, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Benjamin A. Smith’s Laurion Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cadence Bancorporation (NYSE:CADE) but similarly valued. We will take a look at Rite Aid Corporation (NYSE:RAD), istar Inc (NYSE:STAR), Cooper Tire & Rubber Company (NYSE:CTB), and Aphria Inc. (NYSE:APHA). This group of stocks’ market valuations match CADE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RAD 16 45558 6
STAR 14 111654 -1
CTB 20 83606 3
APHA 9 5469 0
Average 14.75 61572 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $66 million in CADE’s case. Cooper Tire & Rubber Company (NYSE:CTB) is the most popular stock in this table. On the other hand Aphria Inc. (NYSE:APHA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Cadence Bancorporation (NYSE:CADE) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CADE as the stock returned 36.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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