While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Bank of Montreal (NYSE:BMO).
Is Bank of Montreal (BMO) a good stock to buy now? Hedge funds were reducing their bets on the stock. The number of long hedge fund positions went down by 3 lately. Bank of Montreal (NYSE:BMO) was in 10 hedge funds’ portfolios at the end of September. The all time high for this statistics is 17. Our calculations also showed that BMO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 13 hedge funds in our database with BMO holdings at the end of June.
Video: 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 S&P 500 ETFs by more than 66 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. 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s go over the recent hedge fund action surrounding Bank of Montreal (NYSE:BMO).
Do Hedge Funds Think BMO Is A Good Stock To Buy Now?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in BMO a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Bank of Montreal (NYSE:BMO) was held by Citadel Investment Group, which reported holding $38.6 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $34.6 million position. Other investors bullish on the company included Renaissance Technologies, Two Sigma Advisors, and GLG Partners. In terms of the portfolio weights assigned to each position Cerebellum Capital allocated the biggest weight to Bank of Montreal (NYSE:BMO), around 0.29% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, earmarking 0.28 percent of its 13F equity portfolio to BMO.
Seeing as Bank of Montreal (NYSE:BMO) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there were a few hedge funds that slashed their full holdings by the end of the third quarter. Intriguingly, Israel Englander’s Millennium Management dropped the largest investment of the 750 funds tracked by Insider Monkey, totaling close to $1.2 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund sold off about $0.7 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Bank of Montreal (NYSE:BMO). We will take a look at BCE Inc. (NYSE:BCE), Prudential Public Limited Company (NYSE:PUK), Banco Santander (Brasil) SA (NYSE:BSBR), L3Harris Technologies, Inc. (NYSE:LHX), The Kraft Heinz Company (NASDAQ:KHC), Constellation Brands, Inc. (NYSE:STZ), and eBay Inc (NASDAQ:EBAY). This group of stocks’ market caps resemble BMO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $2636 million. That figure was $113 million in BMO’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 4 bullish hedge fund positions. Bank of Montreal (NYSE:BMO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BMO is 25.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on BMO as the stock returned 32.3% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.