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Here is What Hedge Funds Really Think About Carnival plc (CUK)

Reymerlyn Martin

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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Carnival Corporation & Plc (NYSE:CUK) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Carnival Corporation & Plc (NYSE:CUK) has experienced an increase in hedge fund sentiment in recent months. Our calculations also showed that CUK 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).

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 S&P 500 ETFs by 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 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.

[caption id="attachment_673876" align="aligncenter" width="400"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 take a peek at the latest hedge fund action encompassing Carnival Corporation & Plc (NYSE:CUK).

Hedge fund activity in Carnival Corporation & Plc (NYSE:CUK)

At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CUK over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Arrowstreet Capital was the largest shareholder of Carnival Corporation & Plc (NYSE:CUK), with a stake worth $77.7 million reported as of the end of September. Trailing Arrowstreet Capital was Renaissance Technologies, which amassed a stake valued at $25.8 million. Two Sigma Advisors, Millennium Management, and Marshall Wace LLP 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 Ionic Capital Management allocated the biggest weight to Carnival Corporation & Plc (NYSE:CUK), around 0.81% of its 13F portfolio. Manikay Partners is also relatively very bullish on the stock, dishing out 0.59 percent of its 13F equity portfolio to CUK.

As aggregate interest increased, specific money managers have jumped into Carnival Corporation & Plc (NYSE:CUK) headfirst. Manikay Partners, managed by Shane Finemore, assembled the largest position in Carnival Corporation & Plc (NYSE:CUK). Manikay Partners had $5.3 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners also made a $0.7 million investment in the stock during the quarter. The other funds with brand new CUK positions are Donald Sussman's Paloma Partners and Matthew Hulsizer's PEAK6 Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Carnival Corporation & Plc (NYSE:CUK) but similarly valued. We will take a look at Cognizant Technology Solutions Corp (NASDAQ:CTSH), China Telecom Corporation Limited (NYSE:CHA), Xcel Energy Inc (NASDAQ:XEL), and Credit Suisse Group AG (NYSE:CS). This group of stocks' market valuations resemble CUK's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTSH,43,2935648,-5 CHA,7,23480,-2 XEL,15,394141,-3 CS,10,229482,-4 Average,18.75,895688,-3.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $896 million. That figure was $155 million in CUK's case. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 7 bullish hedge fund positions. Carnival Corporation & Plc (NYSE:CUK) 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CUK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CUK investors were disappointed as the stock returned -71.4% 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 Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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