While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Cenovus Energy Inc (NYSE:CVE).
Cenovus Energy Inc (NYSE:CVE) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. CVE was in 17 hedge funds' portfolios at the end of the second quarter of 2019. There were 23 hedge funds in our database with CVE holdings at the end of the previous quarter. Our calculations also showed that CVE isn't among the 30 most popular stocks among hedge funds (view 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 check out the latest hedge fund action encompassing Cenovus Energy Inc (NYSE:CVE).
What have hedge funds been doing with Cenovus Energy Inc (NYSE:CVE)?
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the first quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in CVE a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cenovus Energy Inc (NYSE:CVE) was held by Luminus Management, which reported holding $197.3 million worth of stock at the end of March. It was followed by Pzena Investment Management with a $178.4 million position. Other investors bullish on the company included Citadel Investment Group, MAK Capital One, and Lansdowne Partners.
Since Cenovus Energy Inc (NYSE:CVE) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers that decided to sell off their full holdings heading into Q3. It's worth mentioning that Jonathan Barrett and Paul Segal's Luminus Management sold off the biggest investment of all the hedgies monitored by Insider Monkey, totaling close to $119.8 million in stock. Till Bechtolsheimer's fund, Arosa Capital Management, also said goodbye to its stock, about $1.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Cenovus Energy Inc (NYSE:CVE). These stocks are Suzano S.A. (NYSE:SUZ), Eastman Chemical Company (NYSE:EMN), Pinnacle West Capital Corporation (NYSE:PNW), and Wheaton Precious Metals Corp. (NYSE:WPM). This group of stocks' market valuations are closest to CVE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SUZ,2,35984,1 EMN,23,379858,-7 PNW,23,683747,-1 WPM,19,291052,0 Average,16.75,347660,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $348 million. That figure was $597 million in CVE's case. Eastman Chemical Company (NYSE:EMN) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 2 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 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. Hedge funds were also right about betting on CVE as the stock returned 6.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.