Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Clarus Corporation (NASDAQ:CLAR) a buy, sell, or hold? The smart money is taking a bullish view. The number of long hedge fund bets went up by 1 recently. Our calculations also showed that CLAR isn't among the 30 most popular stocks among hedge funds (see the video below). CLAR was in 14 hedge funds' portfolios at the end of the second quarter of 2019. There were 13 hedge funds in our database with CLAR holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 fresh hedge fund action encompassing Clarus Corporation (NASDAQ:CLAR).
How are hedge funds trading Clarus Corporation (NASDAQ:CLAR)?
At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CLAR over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Greenhouse Funds was the largest shareholder of Clarus Corporation (NASDAQ:CLAR), with a stake worth $30.5 million reported as of the end of March. Trailing Greenhouse Funds was Renaissance Technologies, which amassed a stake valued at $14.2 million. Arrowstreet Capital, Royce & Associates, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, some big names have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in Clarus Corporation (NASDAQ:CLAR). Marshall Wace LLP had $1.8 million invested in the company at the end of the quarter. Cliff Asness's AQR Capital Management also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Brian C. Freckmann's Lyon Street Capital and Bruce Kovner's Caxton Associates LP.
Let's now take a look at hedge fund activity in other stocks similar to Clarus Corporation (NASDAQ:CLAR). These stocks are Green Brick Partners Inc (NASDAQ:GRBK), Donegal Group Inc (NASDAQ:DGICA), Ares Commercial Real Estate Corp (NYSE:ACRE), and PennantPark Investment Corp. (NASDAQ:PNNT). All of these stocks' market caps are closest to CLAR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GRBK,15,254669,5 DGICA,4,9133,1 ACRE,13,20374,3 PNNT,9,16479,0 Average,10.25,75164,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $59 million in CLAR's case. Green Brick Partners Inc (NASDAQ:GRBK) is the most popular stock in this table. On the other hand Donegal Group Inc (NASDAQ:DGICA) is the least popular one with only 4 bullish hedge fund positions. Clarus Corporation (NASDAQ:CLAR) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CLAR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CLAR were disappointed as the stock returned -18.6% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
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