We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of CF Industries Holdings, Inc. (NYSE:CF) based on that data.
CF Industries Holdings, Inc. (NYSE:CF) investors should pay attention to a decrease in hedge fund sentiment of late. CF was in 34 hedge funds' portfolios at the end of March. There were 41 hedge funds in our database with CF positions at the end of the previous quarter. Our calculations also showed that CF 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 51 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_339739" align="aligncenter" width="400"] Ricky Sandler of Eminence Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a glance at the key hedge fund action encompassing CF Industries Holdings, Inc. (NYSE:CF).
How are hedge funds trading CF Industries Holdings, Inc. (NYSE:CF)?
Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CF over the last 18 quarters. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Eminence Capital was the largest shareholder of CF Industries Holdings, Inc. (NYSE:CF), with a stake worth $97.7 million reported as of the end of September. Trailing Eminence Capital was Glendon Capital Management, which amassed a stake valued at $96.4 million. Adage Capital Management, D E Shaw, and Platinum Asset Management 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 Glendon Capital Management allocated the biggest weight to CF Industries Holdings, Inc. (NYSE:CF), around 31.54% of its 13F portfolio. Moon Capital is also relatively very bullish on the stock, setting aside 5.68 percent of its 13F equity portfolio to CF.
Due to the fact that CF Industries Holdings, Inc. (NYSE:CF) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of money managers that elected to cut their positions entirely last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management cut the biggest stake of all the hedgies followed by Insider Monkey, worth an estimated $34.8 million in stock. Kevin D. Eng's fund, Columbus Hill Capital Management, also said goodbye to its stock, about $32 million worth. These moves are interesting, 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 CF Industries Holdings, Inc. (NYSE:CF). We will take a look at Reliance Steel & Aluminum Co. (NYSE:RS), IPG Photonics Corporation (NASDAQ:IPGP), Natura &Co Holding S.A. (NYSE:NTCO), and Proofpoint Inc (NASDAQ:PFPT). This group of stocks' market valuations are closest to CF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RS,23,211117,-11 IPGP,20,150252,-5 NTCO,8,66680,8 PFPT,27,315504,-8 Average,19.5,185888,-4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $606 million in CF's case. Proofpoint Inc (NASDAQ:PFPT) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks CF Industries Holdings, Inc. (NYSE:CF) is more popular among hedge funds. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. Unfortunately CF wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CF were disappointed as the stock returned 9.3% during the second quarter (through the end of May) 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.