Amid an overall bull market, many stocks that smart money investors were collectively bullish on 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. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is CannTrust Holdings Inc. (NYSE:CTST) going to take off soon? Prominent investors are selling. The number of bullish hedge fund positions were cut by 7 lately. Our calculations also showed that CTST isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
According to most market participants, hedge funds are assumed to be worthless, old financial tools of the past. While there are more than 8000 funds with their doors open today, Our experts choose to focus on the leaders of this club, approximately 750 funds. It is estimated that this group of investors administer the lion's share of the hedge fund industry's total capital, and by keeping track of their inimitable picks, Insider Monkey has discovered numerous investment strategies that have historically exceeded Mr. Market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_193032" align="aligncenter" width="450"] William Harnisch of Peconic Partners LLC[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a look at the recent hedge fund action encompassing CannTrust Holdings Inc. (NYSE:CTST).
What have hedge funds been doing with CannTrust Holdings Inc. (NYSE:CTST)?
At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -58% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CTST over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Sculptor Capital held the most valuable stake in CannTrust Holdings Inc. (NYSE:CTST), which was worth $0.3 million at the end of the third quarter. On the second spot was D E Shaw which amassed $0.2 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Peconic Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Peconic Partners allocated the biggest weight to CannTrust Holdings Inc. (NYSE:CTST), around 0.01% of its 13F portfolio. Sculptor Capital is also relatively very bullish on the stock, designating 0.0036 percent of its 13F equity portfolio to CTST.
Because CannTrust Holdings Inc. (NYSE:CTST) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of funds who sold off their entire stakes last quarter. Interestingly, Warren Lammert's Granite Point Capital dumped the largest position of all the hedgies monitored by Insider Monkey, comprising close to $4.5 million in stock. Joseph Samuels's fund, Islet Management, also sold off its stock, about $3.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 7 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to CannTrust Holdings Inc. (NYSE:CTST). We will take a look at X4 Pharmaceuticals, Inc. (NASDAQ:XFOR), Medallion Financial Corp. (NASDAQ:MFIN), MVC Capital, Inc. (NYSE:MVC), and SunOpta, Inc. (NASDAQ:STKL). This group of stocks' market valuations resemble CTST's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XFOR,6,46291,0 MFIN,7,3771,1 MVC,9,46000,0 STKL,13,62722,-1 Average,8.75,39696,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $1 million in CTST's case. SunOpta, Inc. (NASDAQ:STKL) is the most popular stock in this table. On the other hand X4 Pharmaceuticals, Inc. (NASDAQ:XFOR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks CannTrust Holdings Inc. (NYSE:CTST) is even less popular than XFOR. Hedge funds dodged a bullet by taking a bearish stance towards CTST. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CTST wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CTST investors were disappointed as the stock returned -28.8% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.