Did Hedge Funds Drop The Ball On CME Group Inc (CME) ?

Nina Todic

Mon, Jun 10, 2019, 6:18 PM

CME Group Inc (NASDAQ:CME) was in 42 hedge funds' portfolios at the end of March. CME shareholders have witnessed a decrease in hedge fund interest lately. There were 50 hedge funds in our database with CME positions at the end of the previous quarter. Our calculations also showed that cme isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

William Von Mueffling - Cantillon Capital Management

We're going to check out the latest hedge fund action encompassing CME Group Inc (NASDAQ:CME).

How have hedgies been trading CME Group Inc (NASDAQ:CME)?

At Q1's end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the fourth quarter of 2018. On the other hand, there were a total of 50 hedge funds with a bullish position in CME a year ago. So, let's check out 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 $317.1 million reported as of the end of March. Trailing Cantillon Capital Management was Renaissance Technologies, which amassed a stake valued at $307.5 million. AQR Capital Management, Citadel Investment Group, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that CME Group Inc (NASDAQ:CME) has faced a decline in interest from hedge fund managers, it's safe to say that there is a sect of fund managers who sold off their entire stakes heading into Q3. Interestingly, Christopher James's Partner Fund Management cut the biggest stake of the 700 funds watched by Insider Monkey, comprising about $41.2 million in stock. Ryan Caldwell's fund, Chiron Investment Management, also sold off its stock, about $21.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 8 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to CME Group Inc (NASDAQ:CME). These stocks are T-Mobile US, Inc. (NASDAQ:TMUS), Baidu, Inc. (NASDAQ:BIDU), Lloyds Banking Group PLC (NYSE:LYG), and The Charles Schwab Corp (NYSE:SCHW). This group of stocks' market values resemble CME's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TMUS,62,2675739,-13 BIDU,53,2734702,2 LYG,8,43491,-2 SCHW,51,3140234,5 Average,43.5,2148542,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.5 hedge funds with bullish positions and the average amount invested in these stocks was $2149 million. That figure was $1846 million in CME's case. T-Mobile US, Inc. (NASDAQ:TMUS) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 8 bullish hedge fund positions. CME Group Inc (NASDAQ:CME) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on CME as the stock returned 16.9% during the same time frame and outperformed the market by an even larger margin.

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

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