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Continental Resources, Inc. (CLR) Fell Out Of Favor With Hedge Funds?

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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Continental Resources, Inc. (NYSE:CLR).

Continental Resources, Inc. (NYSE:CLR) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds' portfolios at the end of June. Our calculations also showed that CLR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). 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 Alliant Energy Corporation (NASDAQ:LNT), FMC Corporation (NYSE:FMC), and New Oriental Education & Technology Group Inc. (NYSE:EDU) to gather more data points.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Clint Carlson of Carlson Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's review the new hedge fund action regarding Continental Resources, Inc. (NYSE:CLR).

Do Hedge Funds Think CLR Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. On the other hand, there were a total of 23 hedge funds with a bullish position in CLR a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the number one position in Continental Resources, Inc. (NYSE:CLR). D E Shaw has a $37 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On D E Shaw's heels is Point72 Asset Management, led by Steve Cohen, holding a $31.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism consist of Dmitry Balyasny's Balyasny Asset Management, Ken Griffin's Citadel Investment Group and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Birchview Capital allocated the biggest weight to Continental Resources, Inc. (NYSE:CLR), around 0.88% of its 13F portfolio. Hourglass Capital is also relatively very bullish on the stock, earmarking 0.46 percent of its 13F equity portfolio to CLR.

Because Continental Resources, Inc. (NYSE:CLR) has witnessed falling interest from the smart money, we can see that there is a sect of funds that slashed their positions entirely last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the biggest stake of the 750 funds monitored by Insider Monkey, worth about $28 million in stock. Brandon Haley's fund, Holocene Advisors, also said goodbye to its stock, about $7.2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Continental Resources, Inc. (NYSE:CLR). We will take a look at Alliant Energy Corporation (NASDAQ:LNT), FMC Corporation (NYSE:FMC), New Oriental Education & Technology Group Inc. (NYSE:EDU), Avalara, Inc. (NYSE:AVLR), Icahn Enterprises LP (NASDAQ:IEP), Open Text Corporation (NASDAQ:OTEX), and Korea Electric Power Corporation (NYSE:KEP). This group of stocks' market values are similar to CLR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LNT,16,70771,3 FMC,33,372160,1 EDU,39,590421,-6 AVLR,29,1031140,-12 IEP,4,13111036,0 OTEX,14,300643,-2 KEP,4,18930,0 Average,19.9,2213586,-2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $2214 million. That figure was $172 million in CLR's case. New Oriental Education & Technology Group Inc. (NYSE:EDU) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 4 bullish hedge fund positions. Continental Resources, Inc. (NYSE:CLR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CLR is 45.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on CLR as the stock returned 35.6% since the end of Q2 (through 10/22) 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.