Hedge Funds Are Crazy About CME Group Inc (CME)

Concerns over rising interest rates and expected further rate increases have hit several stocks hard since the end of the third quarter. NASDAQ and Russell 2000 indices are already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points in the first half of the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards CME Group Inc (NASDAQ:CME).

Is CME Group Inc (NASDAQ:CME) ready to rally soon? Investors who are in the know are betting on the stock. The number of bullish hedge fund bets improved by 5 in recent months. Our calculations also showed that CME isn’t among the 30 most popular stocks among hedge funds. CME was in 53 hedge funds’ portfolios at the end of the third quarter of 2018. There were 48 hedge funds in our database with CME holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? 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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Cliff Asness of AQR Capital Management

Let’s take a gander at the recent hedge fund action surrounding CME Group Inc (NASDAQ:CME).

What does the smart money think about CME Group Inc (NASDAQ:CME)?

At the end of the third quarter, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 46 hedge funds with a bullish position in CME at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds with CME Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in CME Group Inc (NASDAQ:CME), worth close to $358.2 million, amounting to 0.4% of its total 13F portfolio. Sitting at the No. 2 spot is Cantillon Capital Management, led by William von Mueffling, holding a $327.3 million position; 3.7% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish contain Panayotis Takis Sparaggis’s Alkeon Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Now, key hedge funds have been driving this bullishness. Highbridge Capital Management, managed by Glenn Russell Dubin, established the biggest call position in CME Group Inc (NASDAQ:CME). Highbridge Capital Management had $10.2 million invested in the company at the end of the quarter. John Paulson’s Paulson & Co also initiated a $8.3 million position during the quarter. The following funds were also among the new CME investors: Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, Jim O’Brien and Jonathan Dorfman’s Napier Park Global Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s check out 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 Vodafone Group Plc (NASDAQ:VOD), Duke Energy Corporation (NYSE:DUK), Twenty-First Century Fox Inc (NASDAQ:FOXA), and Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG). This group of stocks’ market valuations are closest to CME’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VOD 18 944408 0
DUK 17 1227955 -7
FOXA 73 10493159 -5
SMFG 10 500999 2
Average 29.5 3291630 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $3.30 billion. That figure was $2.02 billion in CME’s case. Twenty-First Century Fox Inc (NASDAQ:FOXA) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 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. In this regard FOXA might be a better candidate to consider a long position.

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