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Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cedar Fair, L.P. (NYSE:FUN).
Cedar Fair, L.P. (NYSE:FUN) shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. FUN was in 9 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 13 hedge funds in our database with FUN holdings at the end of the previous quarter. Our calculations also showed that FUN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Richard Driehaus of Driehaus Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a glance at the new hedge fund action regarding Cedar Fair, L.P. (NYSE:FUN).
How are hedge funds trading Cedar Fair, L.P. (NYSE:FUN)?
Heading into the first quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FUN over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arrowstreet Capital held the most valuable stake in Cedar Fair, L.P. (NYSE:FUN), which was worth $28 million at the end of the third quarter. On the second spot was Intrinsic Edge Capital which amassed $23.4 million worth of shares. Marshall Wace LLP, Citadel Investment Group, and Driehaus Capital 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 Mountaineer Partners Management allocated the biggest weight to Cedar Fair, L.P. (NYSE:FUN), around 4.94% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, setting aside 2.94 percent of its 13F equity portfolio to FUN.
Because Cedar Fair, L.P. (NYSE:FUN) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few funds who sold off their entire stakes last quarter. Interestingly, Noam Gottesman's GLG Partners said goodbye to the biggest position of all the hedgies watched by Insider Monkey, valued at about $7.3 million in stock. Philippe Laffont's fund, Coatue Management, also sold off its stock, about $4.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 4 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Cedar Fair, L.P. (NYSE:FUN) but similarly valued. We will take a look at Spectrum Brands Holdings, Inc. (NYSE:SPB), Select Medical Holdings Corporation (NYSE:SEM), Sunstone Hotel Investors Inc (NYSE:SHO), and Quidel Corporation (NASDAQ:QDEL). This group of stocks' market values resemble FUN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPB,45,556205,9 SEM,21,127591,1 SHO,22,270985,-3 QDEL,18,120078,3 Average,26.5,268715,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $81 million in FUN's case. Spectrum Brands Holdings, Inc. (NYSE:SPB) is the most popular stock in this table. On the other hand Quidel Corporation (NASDAQ:QDEL) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Cedar Fair, L.P. (NYSE:FUN) is even less popular than QDEL. Hedge funds dodged a bullet by taking a bearish stance towards FUN. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately FUN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FUN investors were disappointed as the stock returned -65.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.