Is Credit Suisse Group AG (NYSE:CS) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Credit Suisse Group AG (NYSE:CS) investors should pay attention to a decrease in support from the world’s most elite money managers recently. Our calculations also showed that CS isn’t among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the fresh hedge fund action encompassing Credit Suisse Group AG (NYSE:CS).
How are hedge funds trading Credit Suisse Group AG (NYSE:CS)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in CS over the last 16 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Credit Suisse Group AG (NYSE:CS), which was worth $111.9 million at the end of the second quarter. On the second spot was Masters Capital Management which amassed $23.9 million worth of shares. Moreover, Orbis Investment Management, D E Shaw, and Springhouse Capital Management were also bullish on Credit Suisse Group AG (NYSE:CS), allocating a large percentage of their portfolios to this stock.
Since Credit Suisse Group AG (NYSE:CS) has witnessed declining sentiment from the smart money, logic holds that there is a sect of hedge funds who were dropping their entire stakes heading into Q3. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the largest position of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $5.1 million in stock. Minhua Zhang’s fund, Weld Capital Management, also said goodbye to its stock, about $1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds heading into Q3.
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 O’Reilly Automotive Inc (NASDAQ:ORLY), Public Service Enterprise Group Incorporated (NYSE:PEG), Tyson Foods, Inc. (NYSE:TSN), and Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK). 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 ORLY,50,1820132,7 PEG,23,904765,-5 TSN,39,1442476,-4 TLK,7,146356,-2 Average,29.75,1078432,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1078 million. That figure was $218 million in CS’s case. O’Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 7 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 calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CS, though not to the same extent, as the stock returned 2% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
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