"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Carpenter Technology Corporation (NYSE:CRS).
Carpenter Technology Corporation (NYSE:CRS) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds' portfolios at the end of the third quarter of 2018. 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 Columbia Property Trust Inc (NYSE:CXP), Exponent, Inc. (NASDAQ:EXPO), and Aerie Pharmaceuticals Inc (NASDAQ:AERI) 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. 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 18 percentage points since May 2014 through December 3, 2018 (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.
Let's take a look at the new hedge fund action encompassing Carpenter Technology Corporation (NYSE:CRS).
What does the smart money think about Carpenter Technology Corporation (NYSE:CRS)?
Heading into the fourth quarter of 2018, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, no change from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in CRS heading into this year. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Carpenter Technology Corporation (NYSE:CRS) was held by Royce & Associates, which reported holding $39.8 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $25.3 million position. Other investors bullish on the company included Huber Capital Management, Citadel Investment Group, and Driehaus Capital.
Judging by the fact that Carpenter Technology Corporation (NYSE:CRS) has witnessed falling interest from the smart money, it's safe to say that there was a specific group of hedgies that elected to cut their full holdings heading into Q3. At the top of the heap, Matthew Hulsizer's PEAK6 Capital Management said goodbye to the biggest investment of the 700 funds tracked by Insider Monkey, valued at close to $0.6 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund dumped about $0.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Carpenter Technology Corporation (NYSE:CRS). These stocks are Columbia Property Trust Inc (NYSE:CXP), Exponent, Inc. (NASDAQ:EXPO), Aerie Pharmaceuticals Inc (NASDAQ:AERI), and Delphi Technologies PLC (NYSE:DLPH). This group of stocks' market values are similar to CRS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CXP,13,136349,3 EXPO,12,100619,2 AERI,23,924919,-1 DLPH,22,295869,-1 Average,17.5,364439,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $364 million. That figure was $106 million in CRS's case. Aerie Pharmaceuticals Inc (NASDAQ:AERI) is the most popular stock in this table. On the other hand Exponent, Inc. (NASDAQ:EXPO) is the least popular one with only 12 bullish hedge fund positions. Carpenter Technology Corporation (NYSE:CRS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard AERI might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.