Were Hedge Funds Right About Piling Into Cintas Corporation (CTAS)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtCintas Corporation (NASDAQ:CTAS) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Cintas Corporation (NASDAQ:CTAS) was in 42 hedge funds’ portfolios at the end of the first quarter of 2020. CTAS shareholders have witnessed a decrease in hedge fund interest lately. There were 45 hedge funds in our database with CTAS holdings at the end of the previous quarter. Our calculations also showed that CTAS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

To most traders, hedge funds are viewed as underperforming, outdated financial vehicles of years past. While there are over 8000 funds trading today, Our researchers choose to focus on the leaders of this group, approximately 850 funds. Most estimates calculate that this group of people control bulk of the hedge fund industry’s total asset base, and by watching their inimitable equity investments, Insider Monkey has spotted many investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .


Richard Chilton of Chilton Investment Company

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action encompassing Cintas Corporation (NASDAQ:CTAS).

What does smart money think about Cintas Corporation (NASDAQ:CTAS)?

Heading into the second quarter of 2020, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in CTAS 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.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chilton Investment Company, managed by Richard Chilton, holds the biggest position in Cintas Corporation (NASDAQ:CTAS). Chilton Investment Company has a $66.1 million position in the stock, comprising 2.5% of its 13F portfolio. The second most bullish fund manager is AQR Capital Management, managed by Cliff Asness, which holds a $58.7 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions encompass Robert Joseph Caruso’s Select Equity Group, Panayotis Takis Sparaggis’s Alkeon Capital Management and Peter Simmie’s Bristol Gate Capital Partners. In terms of the portfolio weights assigned to each position Bristol Gate Capital Partners allocated the biggest weight to Cintas Corporation (NASDAQ:CTAS), around 4.41% of its 13F portfolio. Harbor Spring Capital is also relatively very bullish on the stock, dishing out 2.59 percent of its 13F equity portfolio to CTAS.

Because Cintas Corporation (NASDAQ:CTAS) has experienced a decline in interest from the smart money, it’s safe to say that there is a sect of hedge funds that decided to sell off their full holdings last quarter. Intriguingly, James Parsons’s Junto Capital Management dropped the largest position of the 750 funds watched by Insider Monkey, totaling close to $42.8 million in stock. Mark McMeans’s fund, Brasada Capital Management, also cut its stock, about $10.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Cintas Corporation (NASDAQ:CTAS). We will take a look at China Unicom (Hong Kong) Limited (NYSE:CHU), Ameren Corporation (NYSE:AEE), Fastenal Company (NASDAQ:FAST), and Interactive Brokers Group, Inc. (NASDAQ:IBKR). This group of stocks’ market values resemble CTAS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHU 6 47948 -5
AEE 21 723627 -10
FAST 34 588054 1
IBKR 22 779568 -7
Average 20.75 534799 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $458 million in CTAS’s case. Fastenal Company (NASDAQ:FAST) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Cintas Corporation (NASDAQ:CTAS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CTAS as the stock returned 53.8% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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