Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Cemex SAB de CV (NYSE:CX).
Cemex SAB de CV (NYSE:CX) has seen a decrease in hedge fund interest of late. CX was in 10 hedge funds’ portfolios at the end of December. There were 13 hedge funds in our database with CX holdings at the end of the previous quarter. Our calculations also showed that CX isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to check out the recent hedge fund action surrounding Cemex SAB de CV (NYSE:CX).
How have hedgies been trading Cemex SAB de CV (NYSE:CX)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the second quarter of 2018. On the other hand, there were a total of 14 hedge funds with a bullish position in CX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in Cemex SAB de CV (NYSE:CX) was held by Fisher Asset Management, which reported holding $29.3 million worth of stock at the end of September. It was followed by Oaktree Capital Management with a $27.8 million position. Other investors bullish on the company included Millennium Management, GMT Capital, and Citadel Investment Group.
Because Cemex SAB de CV (NYSE:CX) has faced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers who sold off their entire stakes in the third quarter. Intriguingly, David Halpert’s Prince Street Capital Management said goodbye to the biggest stake of the 700 funds watched by Insider Monkey, valued at about $28 million in stock, and Mark Kingdon’s Kingdon Capital was right behind this move, as the fund said goodbye to about $10.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Cemex SAB de CV (NYSE:CX). We will take a look at Hyatt Hotels Corporation (NYSE:H), West Pharmaceutical Services Inc. (NYSE:WST), A. O. Smith Corporation (NYSE:AOS), and Molina Healthcare, Inc. (NYSE:MOH). This group of stocks’ market valuations match CX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| H | 25 | 638419 | -6 |
| WST | 20 | 203499 | 3 |
| AOS | 29 | 503949 | -4 |
| MOH | 27 | 1113378 | -3 |
| Average | 25.25 | 614811 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $615 million. That figure was $100 million in CX’s case. A. O. Smith Corporation (NYSE:AOS) is the most popular stock in this table. On the other hand West Pharmaceutical Services Inc. (NYSE:WST) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Cemex SAB de CV (NYSE:CX) is even less popular than WST. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately CX wasn’t in this group. Hedge funds that bet on CX were disappointed as the stock returned 5.8% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
