It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 18.7% so far in 2019 and outperformed the S&P 500 ETF by 6.6 percentage points. We are done processing the latest 13f filings and in this article we will study how hedge fund sentiment towards CNOOC Limited (NYSE:CEO) changed during the first quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We're going to analyze the fresh hedge fund action regarding CNOOC Limited (NYSE:CEO).
How have hedgies been trading CNOOC Limited (NYSE:CEO)?
At Q1's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CEO over the last 15 quarters. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in CNOOC Limited (NYSE:CEO) was held by Renaissance Technologies, which reported holding $130 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $67 million position. Other investors bullish on the company included Oaktree Capital Management, Horseman Capital Management, and Maverick Capital.
Seeing as CNOOC Limited (NYSE:CEO) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there were a few hedge funds who were dropping their positions entirely last quarter. Interestingly, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners cut the biggest investment of the "upper crust" of funds followed by Insider Monkey, worth an estimated $9.8 million in stock. Noam Gottesman's fund, GLG Partners, also sold off its stock, about $1.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as CNOOC Limited (NYSE:CEO) but similarly valued. These stocks are Alexander's, Inc. (NYSE:ALX), Genworth Financial Inc (NYSE:GNW), Altus Midstream Company (NASDAQ:ALTM), and Heron Therapeutics Inc (NASDAQ:HRTX). This group of stocks' market valuations resemble CEO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALX,4,68989,-2 GNW,24,109872,2 ALTM,6,30159,1 HRTX,31,591998,6 Average,16.25,200255,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $294 million in CEO's case. Heron Therapeutics Inc (NASDAQ:HRTX) is the most popular stock in this table. On the other hand Alexander's, Inc. (NYSE:ALX) is the least popular one with only 4 bullish hedge fund positions. CNOOC Limited (NYSE:CEO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CEO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CEO investors were disappointed as the stock returned -7.8% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.