We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Credit Suisse Group AG (NYSE:CS).
Is CS a good stock to buy now? The best stock pickers were in a pessimistic mood. The number of long hedge fund positions decreased by 1 lately. Credit Suisse Group AG (NYSE:CS) was in 13 hedge funds' portfolios at the end of September. The all time high for this statistic is 22. Our calculations also showed that CS 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.
Minhua Zhang of Weld Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we're going to take a look at the recent hedge fund action surrounding Credit Suisse Group AG (NYSE:CS).
Do Hedge Funds Think CS Is A Good Stock To Buy Now?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in CS a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Credit Suisse Group AG (NYSE:CS), with a stake worth $24.7 million reported as of the end of September. Trailing Renaissance Technologies was Masters Capital Management, which amassed a stake valued at $19.9 million. Citadel Investment Group, Springhouse Capital Management, and PEAK6 Capital 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 Springhouse Capital Management allocated the biggest weight to Credit Suisse Group AG (NYSE:CS), around 12.36% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, designating 1.33 percent of its 13F equity portfolio to CS.
Seeing as Credit Suisse Group AG (NYSE:CS) has experienced declining sentiment from the smart money, it's safe to say that there lies a certain "tier" of hedge funds that elected to cut their entire stakes by the end of the third quarter. It's worth mentioning that Mike Masters's Masters Capital Management dropped the largest stake of the 750 funds tracked by Insider Monkey, totaling close to $9.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund sold off about $0.7 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Credit Suisse Group AG (NYSE:CS) but similarly valued. We will take a look at Skyworks Solutions Inc (NASDAQ:SWKS), China Telecom Corporation Limited (NYSE:CHA), The Trade Desk, Inc. (NASDAQ:TTD), McKesson Corporation (NYSE:MCK), The Williams Companies, Inc. (NYSE:WMB), Sun Life Financial Inc. (NYSE:SLF), and New Oriental Education & Technology Group Inc. (NYSE:EDU). All of these stocks' market caps match CS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWKS,50,886176,1 CHA,3,30054,-2 TTD,23,510796,3 MCK,54,1770079,-7 WMB,38,581626,-3 SLF,13,28463,-1 EDU,40,1753600,1 Average,31.6,794399,-1.1 [/table]
As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $794 million. That figure was $68 million in CS's case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 3 bullish hedge fund positions. Credit Suisse Group AG (NYSE:CS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CS is 31.5. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on CS as the stock returned 31.6% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
