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 Canadian Natural Resources Limited (NYSE:CNQ).
Canadian Natural Resources Limited (NYSE:CNQ) investors should be aware of an increase in enthusiasm from smart money lately. Our calculations also showed that CNQ 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_745225" align="aligncenter" width="1613"] Noam Gottesman of GLG Partners[/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. Let's review the fresh hedge fund action encompassing Canadian Natural Resources Limited (NYSE:CNQ).
Hedge fund activity in Canadian Natural Resources Limited (NYSE:CNQ)
Heading into the fourth quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CNQ over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, holds the number one position in Canadian Natural Resources Limited (NYSE:CNQ). Polar Capital has a $73.9 million position in the stock, comprising 0.7% of its 13F portfolio. Sitting at the No. 2 spot is GLG Partners, led by Noam Gottesman, holding a $61.5 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions consist of Thomas E. Claugus's GMT Capital, David E. Shaw's D E Shaw and Steve Cohen's Point72 Asset Management. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to Canadian Natural Resources Limited (NYSE:CNQ), around 7.28% of its portfolio. Scion Asset Management is also relatively very bullish on the stock, earmarking 6.7 percent of its 13F equity portfolio to CNQ.
As industrywide interest jumped, specific money managers have been driving this bullishness. Marshall Wace, managed by Paul Marshall and Ian Wace, established the most outsized position in Canadian Natural Resources Limited (NYSE:CNQ). Marshall Wace had $34.1 million invested in the company at the end of the quarter. Matt Smith's Deep Basin Capital also made a $17.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Till Bechtolsheimer's Arosa Capital Management, Renaissance Technologies, and Brad Dunkley and Blair Levinsky's Waratah Capital Advisors.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Canadian Natural Resources Limited (NYSE:CNQ) but similarly valued. We will take a look at Monster Beverage Corp (NASDAQ:MNST), Tyson Foods, Inc. (NYSE:TSN), Public Service Enterprise Group Incorporated (NYSE:PEG), and Consolidated Edison, Inc. (NYSE:ED). All of these stocks' market caps are similar to CNQ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MNST,34,2641322,-4 TSN,48,1716693,9 PEG,18,838718,-5 ED,22,1396380,-4 Average,30.5,1648278,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $1648 million. That figure was $558 million in CNQ's case. Tyson Foods, Inc. (NYSE:TSN) is the most popular stock in this table. On the other hand Public Service Enterprise Group Incorporated (NYSE:PEG) is the least popular one with only 18 bullish hedge fund positions. Canadian Natural Resources Limited (NYSE:CNQ) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CNQ wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CNQ were disappointed as the stock returned 5% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.