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Hedge Funds Are Selling Cathay General Bancorp (CATY)

“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Cathay General Bancorp (NASDAQ:CATY).

Cathay General Bancorp (NASDAQ:CATY) shareholders have witnessed a decrease in hedge fund interest recently. CATY was in 13 hedge funds’ portfolios at the end of the third quarter of 2018. There were 14 hedge funds in our database with CATY holdings at the end of the previous quarter. Our calculations also showed that CATY isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

Let’s view the recent hedge fund action surrounding Cathay General Bancorp (NASDAQ:CATY).

How have hedgies been trading Cathay General Bancorp (NASDAQ:CATY)?

Heading into the fourth quarter of 2018, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CATY over the last 13 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds CATY Positions

More specifically, GLG Partners was the largest shareholder of Cathay General Bancorp (NASDAQ:CATY), with a stake worth $16.7 million reported as of the end of September. Trailing GLG Partners was Adage Capital Management, which amassed a stake valued at $9.9 million. AQR Capital Management, Interval Partners, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because Cathay General Bancorp (NASDAQ:CATY) has faced falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of hedge funds who were dropping their positions entirely heading into Q3. At the top of the heap, Matthew Tewksbury’s Stevens Capital Management cut the largest stake of all the hedgies watched by Insider Monkey, worth an estimated $0.9 million in stock. Andrew Feldstein and Stephen Siderow’s fund, Blue Mountain Capital, also dropped its stock, about $0.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cathay General Bancorp (NASDAQ:CATY) but similarly valued. We will take a look at Copa Holdings, S.A. (NYSE:CPA), Tribune Media Company (NYSE:TRCO), GreenSky, Inc. (NASDAQ:GSKY), and Merit Medical Systems, Inc. (NASDAQ:MMSI). This group of stocks’ market valuations are closest to CATY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPA 19 281020 -2
TRCO 39 1292684 7
GSKY 20 187344 -5
MMSI 12 278333 0
Average 22.5 509845 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $510 million. That figure was $63 million in CATY’s case. Tribune Media Company (NYSE:TRCO) is the most popular stock in this table. On the other hand Merit Medical Systems, Inc. (NASDAQ:MMSI) is the least popular one with only 12 bullish hedge fund positions. Cathay General Bancorp (NASDAQ:CATY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TRCO might be a better candidate to consider a long position.

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

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