Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards CIGNA Corporation (NYSE:CI).
Is CIGNA Corporation (NYSE:CI) going to take off soon? Money managers are getting more optimistic. The number of bullish hedge fund bets inched up by 14 lately. Our calculations also showed that CI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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.
Larry Robbins of Glenview Capital
We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let’s take a look at the new hedge fund action encompassing CIGNA Corporation (NYSE:CI).
How have hedgies been trading CIGNA Corporation (NYSE:CI)?
At the end of the third quarter, a total of 62 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in CI over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Glenview Capital, managed by Larry Robbins, holds the number one position in CIGNA Corporation (NYSE:CI). Glenview Capital has a $779 million position in the stock, comprising 8.2% of its 13F portfolio. On Glenview Capital’s heels is Kensico Capital, led by Michael Lowenstein, holding a $217.1 million position; the fund has 4.2% of its 13F portfolio invested in the stock. Other peers with similar optimism consist of Ken Griffin’s Citadel Investment Group, Anthony Bozza’s Lakewood Capital Management and Jonathan Bloomberg’s BloombergSen. In terms of the portfolio weights assigned to each position Hawkeye Capital allocated the biggest weight to CIGNA Corporation (NYSE:CI), around 15.61% of its 13F portfolio. BloombergSen is also relatively very bullish on the stock, earmarking 9.86 percent of its 13F equity portfolio to CI.
Consequently, some big names have been driving this bullishness. Eminence Capital, managed by Ricky Sandler, assembled the most outsized position in CIGNA Corporation (NYSE:CI). Eminence Capital had $161.2 million invested in the company at the end of the quarter. Jeffrey Altman’s Owl Creek Asset Management also made a $63.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Christopher James’s Partner Fund Management, Zach Schreiber’s Point State Capital, and Brian Ashford-Russell and Tim Woolley’s Polar Capital.
Let’s go over hedge fund activity in other stocks similar to CIGNA Corporation (NYSE:CI). We will take a look at Ecolab Inc. (NYSE:ECL), Boston Scientific Corporation (NYSE:BSX), Eni SpA (NYSE:E), and CSX Corporation (NASDAQ:CSX). All of these stocks’ market caps resemble CI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ECL | 38 | 2169031 | 11 |
| BSX | 48 | 2372367 | -2 |
| E | 5 | 58328 | 0 |
| CSX | 38 | 4002726 | -8 |
| Average | 32.25 | 2150613 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $2151 million. That figure was $3081 million in CI’s case. Boston Scientific Corporation (NYSE:BSX) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks CIGNA Corporation (NYSE:CI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CI were disappointed as the stock returned 8.7% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
