Hedge funds are known to underperform the bull markets but that's not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds' consensus picks on average deliver market beating returns. For example in the first 9 months of this year through September 30th the Standard and Poor’s 500 Index returned approximately 20% (including dividend payments). 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. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds' purchases. We know better. That's why we scrutinize hedge fund sentiment before we invest in a stock like Cameco Corporation (NYSE:CCJ).
Cameco Corporation (NYSE:CCJ) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds' portfolios at the end of June. 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 SLM Corp (NASDAQ:SLM), Wyndham Destinations, Inc. (NYSE:WYND), and Performance Food Group Company (NYSE:PFGC) to gather more data points. Our calculations also showed that CCJ 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a 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 glance at the latest hedge fund action encompassing Cameco Corporation (NYSE:CCJ).
How have hedgies been trading Cameco Corporation (NYSE:CCJ)?
At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in CCJ a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Phill Gross and Robert Atchinson's Adage Capital Management has the biggest position in Cameco Corporation (NYSE:CCJ), worth close to $118.5 million, corresponding to 0.3% of its total 13F portfolio. The second most bullish fund manager is David Iben of Kopernik Global Investors, with a $116.3 million position; 19.8% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism encompass David Rosen's Rubric Capital Management, and Ken Griffin's Citadel Investment Group.
Due to the fact that Cameco Corporation (NYSE:CCJ) has witnessed a decline in interest from the smart money, we can see that there were a few funds that slashed their full holdings by the end of the second quarter. Intriguingly, Mark Kingdon's Kingdon Capital dropped the largest stake of the 750 funds watched by Insider Monkey, valued at about $9.7 million in call options, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund cut about $3.1 million worth. These bearish behaviors are intriguing to say the least, 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 Cameco Corporation (NYSE:CCJ). We will take a look at SLM Corp (NASDAQ:SLM), Wyndham Destinations, Inc. (NYSE:WYND), Performance Food Group Company (NYSE:PFGC), and Murphy Oil Corporation (NYSE:MUR). This group of stocks' market caps are closest to CCJ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLM,32,607447,3 WYND,22,456955,-3 PFGC,19,142121,-6 MUR,18,121679,-2 Average,22.75,332051,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $332 million. That figure was $392 million in CCJ's case. SLM Corp (NASDAQ:SLM) is the most popular stock in this table. On the other hand Murphy Oil Corporation (NYSE:MUR) is the least popular one with only 18 bullish hedge fund positions. Cameco Corporation (NYSE:CCJ) 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 CCJ wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CCJ were disappointed as the stock returned -11.5% 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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