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Is Cboe Global Markets, Inc. (CBOE) Going to Burn These Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cboe Global Markets, Inc. (NASDAQ:CBOE).

Cboe Global Markets, Inc. (NASDAQ:CBOE) has experienced an increase in enthusiasm from smart money of late. Our calculations also showed that CBOE isn’t among the 30 most popular stocks among hedge funds.

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.

YORK CAPITAL MANAGEMENT

Unlike this former hedge fund manager 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. Let’s check out the key hedge fund action regarding Cboe Global Markets, Inc. (NASDAQ:CBOE).

What have hedge funds been doing with Cboe Global Markets, Inc. (NASDAQ:CBOE)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in CBOE a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CBOE Positions

The largest stake in Cboe Global Markets, Inc. (NASDAQ:CBOE) was held by Renaissance Technologies, which reported holding $472.9 million worth of stock at the end of March. It was followed by Senator Investment Group with a $155.4 million position. Other investors bullish on the company included Citadel Investment Group, York Capital Management, and D E Shaw.

As one would reasonably expect, some big names have jumped into Cboe Global Markets, Inc. (NASDAQ:CBOE) headfirst. York Capital Management, managed by James Dinan, established the largest position in Cboe Global Markets, Inc. (NASDAQ:CBOE). York Capital Management had $122.5 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also initiated a $66.4 million position during the quarter. The other funds with new positions in the stock are Clint Carlson’s Carlson Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Bruce Kovner’s Caxton Associates LP.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cboe Global Markets, Inc. (NASDAQ:CBOE) but similarly valued. We will take a look at Old Dominion Freight Line, Inc. (NASDAQ:ODFL), Rollins, Inc. (NYSE:ROL), Wabtec Corporation (NYSE:WAB), and Sun Communities Inc (NYSE:SUI). This group of stocks’ market valuations resemble CBOE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ODFL 23 199829 -3
ROL 23 253576 3
WAB 27 1363344 -9
SUI 20 429029 2
Average 23.25 561445 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $561 million. That figure was $1271 million in CBOE’s case. Wabtec Corporation (NYSE:WAB) is the most popular stock in this table. On the other hand Sun Communities Inc (NYSE:SUI) is the least popular one with only 20 bullish hedge fund positions. Cboe Global Markets, Inc.(NASDAQ:CBOE) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CBOE as the stock returned 11.2% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
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.

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