Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
In the financial world there are a large number of indicators market participants use to appraise their holdings. A couple of the less utilized indicators are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top investment managers can outperform their index-focused peers by a significant margin (see the details here).
Let’s take a look at the key hedge fund action regarding Cummins Inc. (NYSE:CMI).
Hedge fund activity in Cummins Inc. (NYSE:CMI)
At Q1’s end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the fourth quarter of 2018. By comparison, 31 hedge funds held shares or bullish call options in CMI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cummins Inc. (NYSE:CMI) was held by Two Sigma Advisors, which reported holding $206.5 million worth of stock at the end of March. It was followed by AQR Capital Management with a $135.8 million position. Other investors bullish on the company included Millennium Management, Point72 Asset Management, and GLG Partners.
Consequently, specific money managers have jumped into Cummins Inc. (NYSE:CMI) headfirst. Holocene Advisors, managed by Brandon Haley, created the most outsized position in Cummins Inc. (NYSE:CMI). Holocene Advisors had $47.3 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $34 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Mike Vranos’s Ellington.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cummins Inc. (NYSE:CMI) but similarly valued. We will take a look at Digital Realty Trust, Inc. (NYSE:DLR), First Data Corporation (NYSE:FDC), Coca-Cola European Partners plc (NYSE:CCEP), and Hilton Worldwide Holdings Inc (NYSE:HLT). This group of stocks’ market valuations resemble CMI’s market valuation.
|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 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $2067 million. That figure was $908 million in CMI’s case. First Data Corporation (NYSE:FDC) is the most popular stock in this table. On the other hand Coca-Cola European Partners plc (NYSE:CCEP) is the least popular one with only 13 bullish hedge fund positions. Cummins Inc. (NYSE:CMI) 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 among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CMI, though not to the same extent, as the stock returned 1.1% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.