The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought CIT Group Inc. (NYSE:CIT) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Is CIT Group Inc. (NYSE:CIT) a buy here? Money managers were turning less bullish. The number of long hedge fund bets fell by 10 in recent months. CIT Group Inc. (NYSE:CIT) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistics is 43. Our calculations also showed that CIT isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 37 hedge funds in our database with CIT holdings at the end of March.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Fred DiSanto Ancora Advisors
Fred DiSanto of Ancora Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let's go over the new hedge fund action regarding CIT Group Inc. (NYSE:CIT).
What have hedge funds been doing with CIT Group Inc. (NYSE:CIT)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CIT over the last 20 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, First Pacific Advisors LLC held the most valuable stake in CIT Group Inc. (NYSE:CIT), which was worth $124.4 million at the end of the third quarter. On the second spot was Lakewood Capital Management which amassed $37.3 million worth of shares. Arrowstreet Capital, Citadel Investment Group, and MSDC Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MSDC Management allocated the biggest weight to CIT Group Inc. (NYSE:CIT), around 3.55% of its 13F portfolio. Birch Run Capital is also relatively very bullish on the stock, earmarking 3.21 percent of its 13F equity portfolio to CIT.
Due to the fact that CIT Group Inc. (NYSE:CIT) has experienced falling interest from the smart money, it's easy to see that there lies a certain "tier" of hedge funds who sold off their entire stakes in the second quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management said goodbye to the largest investment of the 750 funds watched by Insider Monkey, worth an estimated $5.4 million in stock, and David Rosen's Rubric Capital Management was right behind this move, as the fund sold off about $4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 10 funds in the second quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as CIT Group Inc. (NYSE:CIT) but similarly valued. We will take a look at Enable Midstream Partners LP (NYSE:ENBL), Washington Federal Inc. (NASDAQ:WAFD), Arcosa, Inc. (NYSE:ACA), Columbia Banking System Inc (NASDAQ:COLB), International Bancshares Corp (NASDAQ:IBOC), Hillenbrand, Inc. (NYSE:HI), and CVR Energy, Inc. (NYSE:CVI). This group of stocks' market valuations resemble CIT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENBL,5,11040,-1 WAFD,14,34823,-4 ACA,16,156074,-1 COLB,9,85368,-3 IBOC,17,86045,1 HI,12,185181,-2 CVI,18,1506386,-1 Average,13,294988,-1.6 [/table]
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $295 million. That figure was $321 million in CIT's case. CVR Energy, Inc. (NYSE:CVI) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks CIT Group Inc. (NYSE:CIT) is more popular among hedge funds. Our overall hedge fund sentiment score for CIT is 63.8. 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 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 gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately CIT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CIT were disappointed as the stock returned -19.7% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
