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 Colfax Corporation (NYSE:CFX), Macquarie Infrastructure Corporation (NYSE:MIC), The Descartes Systems Group Inc (NASDAQ:DSGX), Axon Enterprise, Inc. (NASDAQ:AAXN), and Tegna Inc (NYSE:TGNA). All of these five stocks had similar market caps at the end of September.
Colfax Corporation (NYSE:CFX) has seen an increase in activity from the world's largest hedge funds of late. Our calculations also showed that CFX 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.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_25086" align="aligncenter" width="450"] Dan Loeb of Third Point[/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 view the fresh hedge fund action regarding Colfax Corporation (NYSE:CFX).
What have hedge funds been doing with Colfax Corporation (NYSE:CFX)?
At Q3's end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CFX over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Colfax Corporation (NYSE:CFX) was held by Cardinal Capital, which reported holding $92.1 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $84.1 million position. Other investors bullish on the company included Royce & Associates, Third Point, and Wexford Capital. In terms of the portfolio weights assigned to each position Wexford Capital allocated the biggest weight to Colfax Corporation (NYSE:CFX), around 6.71% of its portfolio. Cove Street Capital is also relatively very bullish on the stock, dishing out 5.03 percent of its 13F equity portfolio to CFX.
Consequently, specific money managers were leading the bulls' herd. Point72 Asset Management, managed by Steve Cohen, created the largest position in Colfax Corporation (NYSE:CFX). Point72 Asset Management had $12 million invested in the company at the end of the quarter. Michael Hintze's CQS Cayman LP also initiated a $9.8 million position during the quarter. The following funds were also among the new CFX investors: Dmitry Balyasny's Balyasny Asset Management, Benjamin A. Smith's Laurion Capital Management, and David Harding's Winton Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Colfax Corporation (NYSE:CFX) but similarly valued. We will take a look at Macquarie Infrastructure Corporation (NYSE:MIC), The Descartes Systems Group Inc (NASDAQ:DSGX), Axon Enterprise, Inc. (NASDAQ:AAXN), and Tegna Inc (NYSE:TGNA). This group of stocks' market caps resemble CFX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MIC,26,231644,-2 DSGX,14,126013,3 AAXN,14,209400,-2 TGNA,18,359437,3 Average,18,231624,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $653 million in CFX's case. Macquarie Infrastructure Corporation (NYSE:MIC) is the most popular stock in this table. On the other hand The Descartes Systems Group Inc (NASDAQ:DSGX) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Colfax Corporation (NYSE:CFX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CFX as the stock returned 16% during the first two months of Q4 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.