We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Clarus Corporation (NASDAQ:CLAR) and determine whether hedge funds skillfully traded this stock.
Clarus Corporation (NASDAQ:CLAR) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of March. 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 Financial Institutions, Inc. (NASDAQ:FISI), Craft Brew Alliance Inc (NASDAQ:BREW), and Alerus Financial Corporation (NASDAQ:ALRS) to gather more data points. Our calculations also showed that CLAR 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). Video: 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' 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 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.
[caption id="attachment_365194" align="aligncenter" width="392"] David E. Shaw of D.E. Shaw[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a gander at the fresh hedge fund action regarding Clarus Corporation (NASDAQ:CLAR).
How have hedgies been trading Clarus Corporation (NASDAQ:CLAR)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CLAR over the last 18 quarters. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Joe Milano's Greenhouse Funds has the number one position in Clarus Corporation (NASDAQ:CLAR), worth close to $20.1 million, accounting for 4.9% of its total 13F portfolio. The second most bullish fund is Renaissance Technologies, holding a $7.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Chuck Royce's Royce & Associates and Ken Grossman and Glen Schneider's SG Capital Management. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Clarus Corporation (NASDAQ:CLAR), around 4.9% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, earmarking 0.37 percent of its 13F equity portfolio to CLAR.
Because Clarus Corporation (NASDAQ:CLAR) has faced falling interest from the smart money, it's safe to say that there exists a select few funds that decided to sell off their full holdings heading into Q4. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP said goodbye to the largest position of the "upper crust" of funds watched by Insider Monkey, worth an estimated $1 million in stock. Cliff Asness's fund, AQR Capital Management, also dumped its stock, about $0.4 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Clarus Corporation (NASDAQ:CLAR). These stocks are Financial Institutions, Inc. (NASDAQ:FISI), Craft Brew Alliance Inc (NASDAQ:BREW), Alerus Financial Corporation (NASDAQ:ALRS), and Celsius Holdings, Inc. (NASDAQ:CELH). This group of stocks' market caps match CLAR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FISI,11,23795,0 BREW,11,14971,4 ALRS,1,231,-1 CELH,8,7988,1 Average,7.75,11746,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $34 million in CLAR's case. Financial Institutions, Inc. (NASDAQ:FISI) is the most popular stock in this table. On the other hand Alerus Financial Corporation (NASDAQ:ALRS) is the least popular one with only 1 bullish hedge fund positions. Clarus Corporation (NASDAQ:CLAR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately CLAR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CLAR were disappointed as the stock returned 18.2% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.