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Is Cenovus Energy Inc (CVE) Going to Burn These Hedge Funds?

Debasis Saha

In this article you are going to find out whether hedge funds think Cenovus Energy Inc (NYSE:CVE) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Cenovus Energy Inc (NYSE:CVE) ready to rally soon? The best stock pickers are getting less bullish. The number of bullish hedge fund bets were cut by 7 lately. Our calculations also showed that CVE isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CVE was in 24 hedge funds' portfolios at the end of the first quarter of 2020. There were 31 hedge funds in our database with CVE positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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 stocks that are in our short portfolio.

[caption id="attachment_338852" align="aligncenter" width="400"] Richard S. Pzena of Pzena Investment Management[/caption]

Richard Pzena - Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a look at the new hedge fund action encompassing Cenovus Energy Inc (NYSE:CVE).

Hedge fund activity in Cenovus Energy Inc (NYSE:CVE)

At Q1's end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in CVE 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.

Is CVE A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the most valuable position in Cenovus Energy Inc (NYSE:CVE). Pzena Investment Management has a $44.4 million position in the stock, comprising 0.3% of its 13F portfolio. Sitting at the No. 2 spot of Renaissance Technologies, with a $18.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions contain Jonathan Barrett and Paul Segal's Luminus Management, Ken Griffin's Citadel Investment Group and Brandon Haley's Holocene Advisors. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Cenovus Energy Inc (NYSE:CVE), around 1.37% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 0.46 percent of its 13F equity portfolio to CVE.

Since Cenovus Energy Inc (NYSE:CVE) has faced a decline in interest from hedge fund managers, it's safe to say that there were a few funds that slashed their positions entirely in the first quarter. Intriguingly, Michael Kaufman's MAK Capital One dropped the largest stake of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $54.8 million in stock. Joseph Sirdevan's fund, Galibier Capital Management, also said goodbye to its stock, about $30.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 7 funds in the first quarter.

Let's also examine hedge fund activity in other stocks similar to Cenovus Energy Inc (NYSE:CVE). These stocks are Companhia Energetica Minas Gerais (NYSE:CIG), Corporate Office Properties Trust (NYSE:OFC), Manchester United PLC (NYSE:MANU), and TreeHouse Foods Inc. (NYSE:THS). All of these stocks' market caps are similar to CVE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIG,10,20207,1 OFC,17,158054,-4 MANU,8,27822,-2 THS,28,225828,1 Average,15.75,107978,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $103 million in CVE's case. TreeHouse Foods Inc. (NYSE:THS) is the most popular stock in this table. On the other hand Manchester United PLC (NYSE:MANU) is the least popular one with only 8 bullish hedge fund positions. Cenovus Energy Inc (NYSE:CVE) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on CVE as the stock returned 154% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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