We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Churchill Downs Incorporated (NASDAQ:CHDN).
Churchill Downs Incorporated (NASDAQ:CHDN) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 25 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare CHDN to other stocks including MAXIMUS, Inc. (NYSE:MMS), Millicom International Cellular S.A. (NASDAQ:TIGO), and Life Storage, Inc. (NYSE:LSI) to get a better sense of its popularity. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_747408" align="aligncenter" width="473"] Paul Reeder of PAR Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's go over the latest hedge fund action regarding Churchill Downs Incorporated (NASDAQ:CHDN).
How are hedge funds trading Churchill Downs Incorporated (NASDAQ:CHDN)?
At Q3's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHDN over the last 17 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Churchill Downs Incorporated (NASDAQ:CHDN) was held by PAR Capital Management, which reported holding $266.2 million worth of stock at the end of September. It was followed by Nitorum Capital with a $124.8 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Hudson Way Capital Management. In terms of the portfolio weights assigned to each position Hudson Way Capital Management allocated the biggest weight to Churchill Downs Incorporated (NASDAQ:CHDN), around 18.08% of its portfolio. 1060 Capital Management is also relatively very bullish on the stock, earmarking 16.76 percent of its 13F equity portfolio to CHDN.
Due to the fact that Churchill Downs Incorporated (NASDAQ:CHDN) has witnessed a decline in interest from hedge fund managers, we can see that there were a few fund managers who sold off their entire stakes by the end of the third quarter. Interestingly, Sara Nainzadeh's Centenus Global Management dumped the biggest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $2.3 million in stock. Minhua Zhang's fund, Weld Capital Management, also cut its stock, about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Churchill Downs Incorporated (NASDAQ:CHDN) but similarly valued. We will take a look at MAXIMUS, Inc. (NYSE:MMS), Millicom International Cellular S.A. (NASDAQ:TIGO), Life Storage, Inc. (NYSE:LSI), and Kirby Corporation (NYSE:KEX). All of these stocks' market caps are closest to CHDN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MMS,23,223777,1 TIGO,6,96480,1 LSI,15,226876,-5 KEX,20,663418,-3 Average,16,302638,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $303 million. That figure was $721 million in CHDN's case. MAXIMUS, Inc. (NYSE:MMS) is the most popular stock in this table. On the other hand Millicom International Cellular S.A. (NASDAQ:TIGO) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Churchill Downs Incorporated (NASDAQ:CHDN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CHDN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CHDN were disappointed as the stock returned 5.3% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.