Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 34.7% compared to 26.2%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Carvana Co. (NYSE:CVNA) was in 48 hedge funds' portfolios at the end of September. CVNA investors should be aware of an increase in hedge fund sentiment of late, again. There were 45 hedge funds in our database with CVNA holdings at the end of the previous quarter. Our calculations also showed that CVNA 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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (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_26086" align="aligncenter" width="450"] Chase Coleman of Tiger Global 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 analyze the fresh hedge fund action regarding Carvana Co. (NYSE:CVNA).
Hedge fund activity in Carvana Co. (NYSE:CVNA)
At Q3's end, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CVNA over the last 17 quarters. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Spruce House Investment Management, managed by Zachary Sternberg and Benjamin Stein, holds the largest position in Carvana Co. (NYSE:CVNA). Spruce House Investment Management has a $369.6 million position in the stock, comprising 13.4% of its 13F portfolio. The second largest stake is held by Chase Coleman of Tiger Global Management, with a $324.3 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Clifford A. Sosin's CAS Investment Partners, Alex Sacerdote's Whale Rock Capital Management and Edward Goodnow's Goodnow Investment Group. In terms of the portfolio weights assigned to each position CAS Investment Partners allocated the biggest weight to Carvana Co. (NYSE:CVNA), around 37.97% of its portfolio. Antipodean Advisors is also relatively very bullish on the stock, setting aside 19.82 percent of its 13F equity portfolio to CVNA.
As aggregate interest increased, key money managers were leading the bulls' herd. D E Shaw, managed by David E. Shaw, initiated the largest position in Carvana Co. (NYSE:CVNA). D E Shaw had $93.5 million invested in the company at the end of the quarter. Christian Leone's Luxor Capital Group also initiated a $82.4 million position during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Christian Leone's Luxor Capital Group, and Andreas Halvorsen's Viking Global.
Let's check out hedge fund activity in other stocks similar to Carvana Co. (NYSE:CVNA). These stocks are Booz Allen Hamilton Holding Corporation (NYSE:BAH), Elanco Animal Health Incorporated (NYSE:ELAN), Bio-Rad Laboratories, Inc. (NYSE:BIO), and Marathon Oil Corporation (NYSE:MRO). This group of stocks' market caps resemble CVNA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BAH,33,469671,2 ELAN,24,359109,-3 BIO,39,1091143,3 MRO,35,394969,3 Average,32.75,578723,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $579 million. That figure was $2001 million in CVNA's case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand Elanco Animal Health Incorporated (NYSE:ELAN) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Carvana Co. (NYSE:CVNA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on CVNA as the stock returned 36% during Q4 (through 11/22) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.