As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Cenovus Energy Inc (NYSE:CVE).
Cenovus Energy Inc (NYSE:CVE) was in 25 hedge funds' portfolios at the end of September. CVE has seen an increase in activity from the world's largest hedge funds of late. There were 17 hedge funds in our database with CVE positions at the end of the previous quarter. Our calculations also showed that CVE 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' 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 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 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_728376" align="aligncenter" width="473"] Jonathan Barrett of Luminus Management[/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 take a peek at the recent hedge fund action encompassing Cenovus Energy Inc (NYSE:CVE).
How have hedgies been trading Cenovus Energy Inc (NYSE:CVE)?
At Q3's end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 47% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CVE over the last 17 quarters. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Cenovus Energy Inc (NYSE:CVE) was held by Pzena Investment Management, which reported holding $179 million worth of stock at the end of September. It was followed by Luminus Management with a $153 million position. Other investors bullish on the company included Citadel Investment Group, MAK Capital One, and Lansdowne Partners. In terms of the portfolio weights assigned to each position MAK Capital One allocated the biggest weight to Cenovus Energy Inc (NYSE:CVE), around 20.34% of its portfolio. Luminus Management is also relatively very bullish on the stock, dishing out 4.43 percent of its 13F equity portfolio to CVE.
As industrywide interest jumped, specific money managers have jumped into Cenovus Energy Inc (NYSE:CVE) headfirst. Arosa Capital Management, managed by Till Bechtolsheimer, established the most outsized position in Cenovus Energy Inc (NYSE:CVE). Arosa Capital Management had $15.9 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $14.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Sara Nainzadeh's Centenus Global Management, Joseph Samuels's Islet Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's also examine hedge fund activity in other stocks similar to Cenovus Energy Inc (NYSE:CVE). These stocks are Continental Resources, Inc. (NYSE:CLR), Alleghany Corporation (NYSE:Y), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), and Raymond James Financial, Inc. (NYSE:RJF). This group of stocks' market valuations are closest to CVE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLR,37,434858,3 Y,26,404893,0 CHRW,23,300442,3 RJF,27,793083,-8 Average,28.25,483319,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $483 million. That figure was $635 million in CVE's case. Continental Resources, Inc. (NYSE:CLR) is the most popular stock in this table. On the other hand C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) is the least popular one with only 23 bullish hedge fund positions. Cenovus Energy Inc (NYSE:CVE) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CVE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CVE investors were disappointed as the stock returned -5.2% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.