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Did Hedge Funds Drop The Ball On Canadian Solar Inc. (CSIQ) ?

Nina Todic

"Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value," are the words of Maran Capital's Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Canadian Solar Inc. (NASDAQ:CSIQ) and see how it was affected.

Canadian Solar Inc. (NASDAQ:CSIQ) has experienced a decrease in enthusiasm from smart money recently. CSIQ was in 11 hedge funds' portfolios at the end of December. There were 15 hedge funds in our database with CSIQ positions at the end of the previous quarter. Our calculations also showed that csiq isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_735675" align="aligncenter" width="473"] Didric Cederholm of Lion Point Capital[/caption]

Didric Cederholm Lion Point Capital

We're going to take a glance at the recent hedge fund action encompassing Canadian Solar Inc. (NASDAQ:CSIQ).

How are hedge funds trading Canadian Solar Inc. (NASDAQ:CSIQ)?

At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from the second quarter of 2018. By comparison, 9 hedge funds held shares or bullish call options in CSIQ a year ago. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

No of Hedge Funds with CSIQ Positions

Of the funds tracked by Insider Monkey, Didric Cederholm's Lion Point has the number one position in Canadian Solar Inc. (NASDAQ:CSIQ), worth close to $55.7 million, accounting for 8.8% of its total 13F portfolio. On Lion Point's heels is Jonathan Barrett and Paul Segal of Luminus Management, with a $16.3 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Israel Englander's Millennium Management, John Overdeck and David Siegel's Two Sigma Advisors and Ken Griffin's Citadel Investment Group.

Because Canadian Solar Inc. (NASDAQ:CSIQ) has experienced a decline in interest from hedge fund managers, it's safe to say that there lies a certain "tier" of hedge funds who sold off their positions entirely in the third quarter. Intriguingly, Peter S. Park's Park West Asset Management said goodbye to the largest stake of the 700 funds watched by Insider Monkey, comprising an estimated $22.8 million in stock. Philip Rosenstrach's fund, Pomelo Capital, also sold off its stock, about $10.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks similar to Canadian Solar Inc. (NASDAQ:CSIQ). We will take a look at State Bank Financial Corp (NASDAQ:STBZ), Geopark Ltd (NYSE:GPRK), Homology Medicines, Inc. (NASDAQ:FIXX), and Skyline Champion Corporation (NYSE:SKY). This group of stocks' market caps are closest to CSIQ's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STBZ,17,120356,-4 GPRK,13,66659,3 FIXX,8,163781,2 SKY,23,232733,0 Average,15.25,145882,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $146 million. That figure was $96 million in CSIQ's case. Skyline Champion Corporation (NYSE:SKY) is the most popular stock in this table. On the other hand Homology Medicines, Inc. (NASDAQ:FIXX) is the least popular one with only 8 bullish hedge fund positions. Canadian Solar Inc. (NASDAQ:CSIQ) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on CSIQ as the stock returned 36.5% and outperformed the market by an even larger margin.

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

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