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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Canadian Natural Resources Limited (NYSE:CNQ)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in Canadian Natural Resources Limited (NYSE:CNQ) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that CNQ isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Match Group, Inc. (NASDAQ:MTCH), Southwest Airlines Co. (NYSE:LUV), and Prudential Financial Inc (NYSE:PRU) to gather more data points.
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Noam Gottesman of GLG Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to go over the recent hedge fund action encompassing Canadian Natural Resources Limited (NYSE:CNQ).
Do Hedge Funds Think CNQ Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CNQ over the last 23 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Yacktman Asset Management was the largest shareholder of Canadian Natural Resources Limited (NYSE:CNQ), with a stake worth $206.8 million reported as of the end of March. Trailing Yacktman Asset Management was GLG Partners, which amassed a stake valued at $60.8 million. Marshall Wace LLP, Two Sigma Advisors, and Holocene Advisors 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 Elm Ridge Capital allocated the biggest weight to Canadian Natural Resources Limited (NYSE:CNQ), around 6.58% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, designating 3.41 percent of its 13F equity portfolio to CNQ.
Judging by the fact that Canadian Natural Resources Limited (NYSE:CNQ) has witnessed declining sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of fund managers that decided to sell off their full holdings heading into Q2. Intriguingly, Todd J. Kantor's Encompass Capital Advisors said goodbye to the largest position of the 750 funds monitored by Insider Monkey, totaling about $24.2 million in stock, and Zach Schreiber's Point State Capital was right behind this move, as the fund dumped about $17.1 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Canadian Natural Resources Limited (NYSE:CNQ) but similarly valued. These stocks are Match Group, Inc. (NASDAQ:MTCH), Southwest Airlines Co. (NYSE:LUV), Prudential Financial Inc (NYSE:PRU), Roblox Corporation (NYSE:RBLX), Cintas Corporation (NASDAQ:CTAS), Xcel Energy Inc (NYSE:XEL), and Lufax Holding Ltd (NYSE:LU). This group of stocks' market values resemble CNQ's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTCH,68,2938465,-4 LUV,52,747041,-3 PRU,37,634521,1 RBLX,46,3387779,46 CTAS,32,582628,-4 XEL,18,200349,-10 LU,9,208197,-2 Average,37.4,1242711,3.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.4 hedge funds with bullish positions and the average amount invested in these stocks was $1243 million. That figure was $529 million in CNQ's case. Match Group, Inc. (NASDAQ:MTCH) is the most popular stock in this table. On the other hand Lufax Holding Ltd (NYSE:LU) is the least popular one with only 9 bullish hedge fund positions. Canadian Natural Resources Limited (NYSE:CNQ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CNQ is 47.5. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and still beat the market by 6 percentage points. A small number of hedge funds were also right about betting on CNQ as the stock returned 19.3% since the end of the first quarter (through 7/2) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.