It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Cinemark Holdings, Inc. (NYSE:CNK).
Cinemark Holdings, Inc. (NYSE:CNK) has seen an increase in hedge fund sentiment in recent months. Our calculations also showed that CNK isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the new hedge fund action regarding Cinemark Holdings, Inc. (NYSE:CNK).
What does smart money think about Cinemark Holdings, Inc. (NYSE:CNK)?
At Q2's end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the first quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in CNK a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Renaissance Technologies holds the biggest position in Cinemark Holdings, Inc. (NYSE:CNK). Renaissance Technologies has a $105.9 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $21.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish include Cliff Asness's AQR Capital Management, Israel Englander's Millennium Management and John Overdeck and David Siegel's Two Sigma Advisors.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Ailanthus Capital Management, managed by Genevieve Kahr, initiated the most valuable position in Cinemark Holdings, Inc. (NYSE:CNK). Ailanthus Capital Management had $6.6 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $3.1 million position during the quarter. The other funds with brand new CNK positions are Michael Gelband's ExodusPoint Capital, Bruce Kovner's Caxton Associates LP, and David Harding's Winton Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Cinemark Holdings, Inc. (NYSE:CNK) but similarly valued. These stocks are Cameco Corporation (NYSE:CCJ), Compania de Minas Buenaventura SA (NYSE:BVN), DCP Midstream LP (NYSE:DCP), and Carter's, Inc. (NYSE:CRI). This group of stocks' market caps match CNK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCJ,24,392412,0 BVN,7,16086,0 DCP,2,13029,0 CRI,25,192467,6 Average,14.5,153499,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $198 million in CNK's case. Carter's, Inc. (NYSE:CRI) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 2 bullish hedge fund positions. Cinemark Holdings, Inc. (NYSE:CNK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CNK as the stock returned 8% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.