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Hedge Funds Have Never Been More Bullish On City Holding Company (CHCO)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is City Holding Company (NASDAQ:CHCO) ready to rally soon? Money managers are in a bullish mood. The number of bullish hedge fund bets rose by 3 recently. Our calculations also showed that CHCO isn’t among the 30 most popular stocks among hedge funds (see the video below). CHCO was in 11 hedge funds’ portfolios at the end of June. There were 8 hedge funds in our database with CHCO positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

TUDOR INVESTMENT CORP

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the new hedge fund action surrounding City Holding Company (NASDAQ:CHCO).

How have hedgies been trading City Holding Company (NASDAQ:CHCO)?

At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHCO over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with CHCO Positions

According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the number one position in City Holding Company (NASDAQ:CHCO), worth close to $12.9 million, comprising 0.1% of its total 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $1.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism comprise Renaissance Technologies, Paul Tudor Jones’s Tudor Investment Corp and Cliff Asness’s AQR Capital Management.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Tudor Investment Corp, managed by Paul Tudor Jones, assembled the most outsized position in City Holding Company (NASDAQ:CHCO). Tudor Investment Corp had $0.7 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.4 million investment in the stock during the quarter. The only other fund with a brand new CHCO position is Benjamin A. Smith’s Laurion Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as City Holding Company (NASDAQ:CHCO) but similarly valued. These stocks are Orion Engineered Carbons SA (NYSE:OEC), Sandy Spring Bancorp Inc. (NASDAQ:SASR), Eidos Therapeutics, Inc. (NASDAQ:EIDX), and Waddell & Reed Financial, Inc. (NYSE:WDR). This group of stocks’ market caps match CHCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OEC 17 269481 -6
SASR 15 83501 1
EIDX 11 221663 3
WDR 18 127891 0
Average 15.25 175634 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $19 million in CHCO’s case. Waddell & Reed Financial, Inc. (NYSE:WDR) is the most popular stock in this table. On the other hand Eidos Therapeutics, Inc. (NASDAQ:EIDX) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks City Holding Company (NASDAQ:CHCO) is even less popular than EIDX. Hedge funds dodged a bullet by taking a bearish stance towards CHCO. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CHCO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CHCO investors were disappointed as the stock returned 0.7% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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