The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of Cott Corporation (NYSE:COT) and find out how it is affected by hedge funds' moves.
Hedge fund interest in Cott Corporation (NYSE:COT) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Renasant Corporation (NASDAQ:RNST), The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), and Retail Opportunity Investments Corp (NASDAQ:ROIC) to gather more data points.
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 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.
Let's check out the latest hedge fund action encompassing Cott Corporation (NYSE:COT).
What have hedge funds been doing with Cott Corporation (NYSE:COT)?
At Q1's end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in COT a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cott Corporation (NYSE:COT) was held by Nitorum Capital, which reported holding $127.4 million worth of stock at the end of March. It was followed by P2 Capital Partners with a $70 million position. Other investors bullish on the company included Millennium Management, Interval Partners, and Renaissance Technologies.
Judging by the fact that Cott Corporation (NYSE:COT) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedge funds who were dropping their positions entirely in the third quarter. Intriguingly, Philip Hilal's Clearfield Capital dumped the largest investment of all the hedgies followed by Insider Monkey, valued at about $13.2 million in stock, and David MacKnight's One Fin Capital Management was right behind this move, as the fund dropped about $8.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Cott Corporation (NYSE:COT). These stocks are Renasant Corporation (NASDAQ:RNST), The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), Retail Opportunity Investments Corp (NASDAQ:ROIC), and Otter Tail Corporation (NASDAQ:OTTR). This group of stocks' market caps match COT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RNST,16,35925,3 NTB,15,128157,-1 ROIC,8,57661,-2 OTTR,10,72052,-2 Average,12.25,73449,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $501 million in COT's case. Renasant Corporation (NASDAQ:RNST) is the most popular stock in this table. On the other hand Retail Opportunity Investments Corp (NASDAQ:ROIC) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Cott Corporation (NYSE:COT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately COT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on COT were disappointed as the stock returned -11.6% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.