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 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% 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' 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 Crown Holdings, Inc. (NYSE:CCK).
Crown Holdings, Inc. (NYSE:CCK) has experienced an increase in enthusiasm from smart money lately. Our calculations also showed that overall hedge fund sentiment towards CCK is at its all time high. This is usually a bullish sign. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed similar performances from OKTA, Twilio, MSCI, MASI and Progressive Corporation (PGR); these stocks returned 37%, 37%, 29%, 28% and 27% respectively. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management (BAM), Atlassian Corporation (TEAM), RCL, MTB, VAR, RNG, FIVE and CRH hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5-3 months of this year.
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 32 percentage points since May 2014 through March 12, 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 take a gander at the latest hedge fund action encompassing Crown Holdings, Inc. (NYSE:CCK).
How are hedge funds trading Crown Holdings, Inc. (NYSE:CCK)?
Heading into the first quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CCK over the last 14 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, Adage Capital Management was the largest shareholder of Crown Holdings, Inc. (NYSE:CCK), with a stake worth $126.4 million reported as of the end of September. Trailing Adage Capital Management was Rivulet Capital, which amassed a stake valued at $120.4 million. Citadel Investment Group, Firefly Value Partners, and Anchor Bolt Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key hedge funds were leading the bulls' herd. MD Sass, managed by Martin D. Sass, initiated the largest position in Crown Holdings, Inc. (NYSE:CCK). MD Sass had $23.3 million invested in the company at the end of the quarter. John Ku's Manor Road Capital Partners also initiated a $11.4 million position during the quarter. The other funds with brand new CCK positions are Jonathan Barrett and Paul Segal's Luminus Management, Jed Nussdorf's Soapstone Capital, and Tom Wilcox's Cider Mill Investments.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Crown Holdings, Inc. (NYSE:CCK) but similarly valued. These stocks are Royal Gold, Inc (NASDAQ:RGLD), Jefferies Financial Group Inc. (NYSE:JEF), WABCO Holdings Inc. (NYSE:WBC), and CyrusOne Inc (NASDAQ:CONE). This group of stocks' market values resemble CCK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RGLD,15,57935,-2 JEF,36,607137,-3 WBC,14,515831,-1 CONE,14,124203,-10 Average,19.75,326277,-4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $718 million in CCK's case. Jefferies Financial Group Inc. (NYSE:JEF) is the most popular stock in this table. On the other hand WABCO Holdings Inc. (NYSE:WBC) is the least popular one with only 14 bullish hedge fund positions. Crown Holdings, Inc. (NYSE:CCK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on CCK as the stock returned 34.8% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.