We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like CIT Group Inc. (NYSE:CIT).
CIT Group Inc. (NYSE:CIT) has experienced an increase in hedge fund interest lately. CIT was in 27 hedge funds’ portfolios at the end of the third quarter of 2019. There were 25 hedge funds in our database with CIT positions at the end of the previous quarter. Our calculations also showed that CIT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Jeffrey Altman of Owl Creek Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the new hedge fund action surrounding CIT Group Inc. (NYSE:CIT).
Hedge fund activity in CIT Group Inc. (NYSE:CIT)
Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CIT over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in CIT Group Inc. (NYSE:CIT) was held by First Pacific Advisors, which reported holding $394.4 million worth of stock at the end of September. It was followed by Lakewood Capital Management with a $134 million position. Other investors bullish on the company included Arrowstreet Capital, Owl Creek Asset Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Lakewood Capital Management allocated the biggest weight to CIT Group Inc. (NYSE:CIT), around 4.57% of its portfolio. MFP Investors is also relatively very bullish on the stock, earmarking 3.88 percent of its 13F equity portfolio to CIT.
As industrywide interest jumped, key money managers have been driving this bullishness. Tontine Asset Management, managed by Jeffrey Gendell, assembled the most outsized call position in CIT Group Inc. (NYSE:CIT). Tontine Asset Management had $5.4 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $0.9 million position during the quarter. The other funds with new positions in the stock are Bruce Kovner’s Caxton Associates, Paul Tudor Jones’s Tudor Investment Corp, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s go over hedge fund activity in other stocks similar to CIT Group Inc. (NYSE:CIT). These stocks are Six Flags Entertainment Corp (NYSE:SIX), LG Display Co Ltd. (NYSE:LPL), Deckers Outdoor Corp (NYSE:DECK), and Wyndham Destinations, Inc. (NYSE:WYND). This group of stocks’ market valuations are similar to CIT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SIX | 37 | 639016 | 7 |
| LPL | 3 | 9362 | 0 |
| DECK | 26 | 415436 | 1 |
| WYND | 21 | 521654 | -1 |
| Average | 21.75 | 396367 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $396 million. That figure was $810 million in CIT’s case. Six Flags Entertainment Corp (NYSE:SIX) is the most popular stock in this table. On the other hand LG Display Co Ltd. (NYSE:LPL) is the least popular one with only 3 bullish hedge fund positions. CIT Group Inc. (NYSE:CIT) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CIT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CIT were disappointed as the stock returned 1.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
