Were Hedge Funds Right About Abandoning CME Group Inc (CME)?

Is CME Group Inc (NASDAQ:CME) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.

Is CME Group Inc (NASDAQ:CME) a bargain? The smart money is getting less optimistic. The number of bullish hedge fund bets decreased by 3 in recent months. Our calculations also showed that CME isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

Let’s take a gander at the key hedge fund action regarding CME Group Inc (NASDAQ:CME).

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

Heading into the first quarter of 2019, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CME over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


More specifically, Cantillon Capital Management was the largest shareholder of CME Group Inc (NASDAQ:CME), with a stake worth $364.2 million reported as of the end of September. Trailing Cantillon Capital Management was AQR Capital Management, which amassed a stake valued at $297.7 million. Citadel Investment Group, Adage Capital Management, and Intermede Investment Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that CME Group Inc (NASDAQ:CME) has faced falling interest from the smart money, it’s easy to see that there lies a certain “tier” of fund managers that slashed their entire stakes heading into Q3. Interestingly, Anand Parekh’s Alyeska Investment Group dropped the biggest position of the 700 funds monitored by Insider Monkey, comprising close to $57.2 million in stock, and James Parsons’s Junto Capital Management was right behind this move, as the fund dumped about $54.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CME Group Inc (NASDAQ:CME) but similarly valued. We will take a look at ASML Holding N.V. (NASDAQ:ASML), Banco Bradesco SA (NYSE:BBD), General Electric Company (NYSE:GE), and Charter Communications, Inc. (NASDAQ:CHTR). This group of stocks’ market values match CME’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ASML 16 650607 3
BBD 16 627609 2
GE 59 2955156 13
CHTR 64 6572480 -3
Average 38.75 2701463 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $2701 million. That figure was $1411 million in CME’s case. Charter Communications, Inc. (NASDAQ:CHTR) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 16 bullish hedge fund positions. CME Group Inc (NASDAQ:CME) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately CME wasn’t in this group. Hedge funds that bet on CME were disappointed as the stock lost 9.2% 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 13 of these outperformed the market.

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