Is CME A Good Stock To Buy Now?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in CME Group Inc (NASDAQ:CME)? The smart money sentiment can provide an answer to this question.

Is CME a good stock to buy now? CME Group Inc (NASDAQ:CME) was in 59 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 62. CME investors should be aware of a decrease in activity from the world’s largest hedge funds of late. There were 60 hedge funds in our database with CME positions at the end of the second quarter. Our calculations also showed that CME 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).

Video: 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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind we’re going to take a gander at the key hedge fund action encompassing CME Group Inc (NASDAQ:CME).

How are hedge funds trading CME Group Inc (NASDAQ:CME)?

At the end of the third quarter, a total of 59 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in CME over the last 21 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in CME Group Inc (NASDAQ:CME) was held by Viking Global, which reported holding $387.6 million worth of stock at the end of September. It was followed by Cantillon Capital Management with a $306.9 million position. Other investors bullish on the company included D E Shaw, GuardCap Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position VGI Partners allocated the biggest weight to CME Group Inc (NASDAQ:CME), around 13.83% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, setting aside 9.7 percent of its 13F equity portfolio to CME.

Due to the fact that CME Group Inc (NASDAQ:CME) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of funds that slashed their positions entirely in the third quarter. It’s worth mentioning that Nicolai Tangen’s Ako Capital sold off the biggest position of the 750 funds followed by Insider Monkey, worth about $103.7 million in stock. Jinghua Yan’s fund, TwinBeech Capital, also said goodbye to its stock, about $2.2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to CME Group Inc (NASDAQ:CME). These stocks are Automatic Data Processing (NASDAQ:ADP), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), CSX Corporation (NASDAQ:CSX), Enbridge Inc (NYSE:ENB), BP plc (NYSE:BP), Infosys Limited (NYSE:INFY), and Marsh & McLennan Companies, Inc. (NYSE:MMC). This group of stocks’ market valuations match CME’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADP 42 1927660 -7
REGN 44 1404179 -5
CSX 58 3253140 12
ENB 25 342708 -3
BP 30 611924 3
INFY 22 1427968 -1
MMC 35 841460 -3
Average 36.6 1401291 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $1401 million. That figure was $2577 million in CME’s case. CSX Corporation (NASDAQ:CSX) is the most popular stock in this table. On the other hand Infosys Limited (NYSE:INFY) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks CME Group Inc (NASDAQ:CME) is more popular among hedge funds. Our overall hedge fund sentiment score for CME is 82.5. 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Unfortunately CME wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CME were disappointed as the stock returned 8.7% since the end of the third quarter (through 12/2) 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 most of these stocks already outperformed the market in 2020.

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