We are still in an overall bull market and many stocks that smart money investors were piling into 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. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like CSX Corporation (NASDAQ:CSX).
Is CSX Corporation (NASDAQ:CSX) ready to rally soon? Hedge funds are taking a bearish view. The number of long hedge fund positions were cut by 8 lately. Our calculations also showed that CSX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CSX was in 38 hedge funds' portfolios at the end of September. There were 46 hedge funds in our database with CSX holdings at the end of the previous quarter. Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_30668" align="aligncenter" width="478"] Richard Chilton of Chilton Investment Company[/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. We're going to take a gander at the recent hedge fund action encompassing CSX Corporation (NASDAQ:CSX).
Hedge fund activity in CSX Corporation (NASDAQ:CSX)
At Q3's end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in CSX 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, Mantle Ridge LP held the most valuable stake in CSX Corporation (NASDAQ:CSX), which was worth $2636.2 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $283.4 million worth of shares. Steadfast Capital Management, Renaissance Technologies, and Chilton Investment Company 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 Mantle Ridge LP allocated the biggest weight to CSX Corporation (NASDAQ:CSX), around 96.19% of its portfolio. Chilton Investment Company is also relatively very bullish on the stock, setting aside 4.22 percent of its 13F equity portfolio to CSX.
Due to the fact that CSX Corporation (NASDAQ:CSX) has experienced falling interest from the smart money, it's easy to see that there was a specific group of fund managers that slashed their positions entirely last quarter. Interestingly, John Armitage's Egerton Capital Limited dumped the biggest stake of the "upper crust" of funds followed by Insider Monkey, valued at about $513.4 million in stock. Aaron Cowen's fund, Suvretta Capital Management, also said goodbye to its stock, about $54.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 8 funds last quarter.
Let's now review hedge fund activity in other stocks similar to CSX Corporation (NASDAQ:CSX). These stocks are Allergan plc (NYSE:AGN), The Charles Schwab Corporation (NYSE:SCHW), Raytheon Company (NYSE:RTN), and Target Corporation (NYSE:TGT). All of these stocks' market caps are closest to CSX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGN,81,8207290,1 SCHW,52,3125721,4 RTN,49,3254934,10 TGT,53,2073012,16 Average,58.75,4165239,7.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 58.75 hedge funds with bullish positions and the average amount invested in these stocks was $4165 million. That figure was $4003 million in CSX's case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Raytheon Company (NYSE:RTN) is the least popular one with only 49 bullish hedge fund positions. Compared to these stocks CSX Corporation (NASDAQ:CSX) is even less popular than RTN. Hedge funds dodged a bullet by taking a bearish stance towards CSX. 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 CSX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CSX investors were disappointed as the stock returned 3.6% 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.