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Hedge Funds Aren’t Crazy About CTS Corporation (CTS) Anymore

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of CTS Corporation (NYSE:CTS) based on that data.

Is CTS Corporation (NYSE:CTS) an excellent stock to buy now? The best stock pickers are becoming less confident. The number of long hedge fund bets were cut by 1 lately. Our calculations also showed that CTS 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). CTS was in 9 hedge funds’ portfolios at the end of March. There were 10 hedge funds in our database with CTS holdings at the end of the previous quarter.

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.

Mario Gabelli of GAMCO Investors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 go over the latest hedge fund action encompassing CTS Corporation (NYSE:CTS).

What does smart money think about CTS Corporation (NYSE:CTS)?

Heading into the second quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CTS over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in CTS Corporation (NYSE:CTS) was held by GAMCO Investors, which reported holding $50.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $6.5 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Citadel Investment Group. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to CTS Corporation (NYSE:CTS), around 0.6% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.43 percent of its 13F equity portfolio to CTS.

Judging by the fact that CTS Corporation (NYSE:CTS) has faced falling interest from hedge fund managers, it’s safe to say that there exists a select few fund managers who sold off their full holdings last quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $0.3 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund said goodbye to about $0.2 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CTS Corporation (NYSE:CTS) but similarly valued. We will take a look at Ameresco Inc (NYSE:AMRC), Huami Corporation (NYSE:HMI), QAD Inc. (NASDAQ:QADA), and Fiverr International Ltd. (NYSE:FVRR). This group of stocks’ market caps are closest to CTS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMRC 11 46335 3
HMI 5 20451 -4
QADA 16 120856 1
FVRR 13 54896 2
Average 11.25 60635 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $68 million in CTS’s case. QAD Inc. (NASDAQ:QADA) is the most popular stock in this table. On the other hand Huami Corporation (NYSE:HMI) is the least popular one with only 5 bullish hedge fund positions. CTS Corporation (NYSE:CTS) 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. 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 gained 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately CTS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CTS investors were disappointed as the stock returned -17.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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