Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. 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 Columbus McKinnon Corporation (NASDAQ:CMCO).
Columbus McKinnon Corporation (NASDAQ:CMCO) investors should be aware of an increase in activity from the world's largest hedge funds lately. CMCO was in 22 hedge funds' portfolios at the end of the third quarter of 2019. There were 20 hedge funds in our database with CMCO holdings at the end of the previous quarter. Our calculations also showed that CMCO 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.
Why do we pay any attention at all to hedge fund sentiment? 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_221556" align="aligncenter" width="450"] Richard Driehaus of Driehaus Capital[/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 review the key hedge fund action encompassing Columbus McKinnon Corporation (NASDAQ:CMCO).
How have hedgies been trading Columbus McKinnon Corporation (NASDAQ:CMCO)?
At Q3's end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in CMCO a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Columbus McKinnon Corporation (NASDAQ:CMCO), which was worth $8.8 million at the end of the third quarter. On the second spot was Skylands Capital which amassed $7 million worth of shares. Driehaus Capital, Arrowstreet Capital, and Brant Point Investment 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 Spitfire Capital allocated the biggest weight to Columbus McKinnon Corporation (NASDAQ:CMCO), around 5.15% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, earmarking 1.34 percent of its 13F equity portfolio to CMCO.
As one would reasonably expect, key money managers were leading the bulls' herd. Weld Capital Management, managed by Minhua Zhang, initiated the most valuable position in Columbus McKinnon Corporation (NASDAQ:CMCO). Weld Capital Management had $0.5 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $0.5 million position during the quarter. The only other fund with a brand new CMCO position is Matthew Hulsizer's PEAK6 Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Columbus McKinnon Corporation (NASDAQ:CMCO) but similarly valued. We will take a look at TCG BDC, Inc. (NASDAQ:CGBD), Diebold Nixdorf Incorporated (NYSE:DBD), 21Vianet Group Inc (NASDAQ:VNET), and G1 Therapeutics, Inc. (NASDAQ:GTHX). This group of stocks' market values are similar to CMCO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CGBD,6,28979,-2 DBD,17,165479,2 VNET,12,48229,-5 GTHX,14,48901,4 Average,12.25,72897,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $64 million in CMCO's case. Diebold Nixdorf Incorporated (NYSE:DBD) is the most popular stock in this table. On the other hand TCG BDC, Inc. (NASDAQ:CGBD) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Columbus McKinnon Corporation (NASDAQ:CMCO) 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 CMCO as the stock returned 12.9% 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.