Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Aurora Cannabis Inc. (NASDAQ:ACB).
Is Aurora Cannabis Inc. (NASDAQ:ACB) worth your attention right now? Investors who are in the know are taking an optimistic view. The number of long hedge fund bets went up by 1 recently. Our calculations also showed that ACB isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). ACB was in 12 hedge funds' portfolios at the end of December. There were 11 hedge funds in our database with ACB positions at the end of the previous 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26340" align="aligncenter" width="400"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to view the key hedge fund action surrounding Aurora Cannabis Inc. (NASDAQ:ACB).
How are hedge funds trading Aurora Cannabis Inc. (NYSE:ACB)?
At Q4's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the third quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in ACB a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Ken Griffin's Citadel Investment Group has the number one position in Aurora Cannabis Inc. (NYSE:ACB), worth close to $6.8 million, comprising less than 0.1%% of its total 13F portfolio. Coming in second is Renaissance Technologies, founded by Jim Simons, holding a $4.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions comprise Shashin Shah's Think Investments, and OZ Management. In terms of the portfolio weights assigned to each position Think Investments allocated the biggest weight to Aurora Cannabis Inc. (NYSE:ACB), around 1.63% of its 13F portfolio. OZ Management is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to ACB.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Think Investments, managed by Shashin Shah, assembled the largest position in Aurora Cannabis Inc. (NYSE:ACB). Think Investments had $4.4 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also made a $1 million investment in the stock during the quarter. The other funds with new positions in the stock are Schonfeld Strategic Advisors, Kenneth Tropin's Graham Capital Management, and Ken Fisher's Fisher Asset Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Aurora Cannabis Inc. (NYSE:ACB) but similarly valued. These stocks are Washington Real Estate Investment Trust (NYSE:WRE), Tenable Holdings, Inc. (NASDAQ:TENB), PQ Group Holdings Inc. (NYSE:PQG), and Mednax Inc. (NYSE:MD). This group of stocks' market valuations resemble ACB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WRE,9,128480,4 TENB,22,210963,3 PQG,4,55625,-4 MD,33,488775,12 Average,17,220961,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $19 million in ACB's case. Mednax Inc. (NYSE:MD) is the most popular stock in this table. On the other hand PQ Group Holdings Inc. (NYSE:PQG) is the least popular one with only 4 bullish hedge fund positions. Aurora Cannabis Inc. (NYSE:ACB) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately ACB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ACB investors were disappointed as the stock returned -63% 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 most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.