The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 18.7% through May 30th, vs. a gain of 12.1% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Cabot Microelectronics Corporation (NASDAQ:CCMP), and what that likely means for the prospects of the company and its stock.
Is Cabot Microelectronics Corporation (NASDAQ:CCMP) a healthy stock for your portfolio? The best stock pickers are selling. The number of bullish hedge fund positions were trimmed by 3 lately. Our calculations also showed that CCMP isn't among the 30 most popular stocks among hedge funds.
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.
We're going to take a gander at the recent hedge fund action encompassing Cabot Microelectronics Corporation (NASDAQ:CCMP).
How have hedgies been trading Cabot Microelectronics Corporation (NASDAQ:CCMP)?
At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards CCMP over the last 15 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.
According to Insider Monkey's hedge fund database, Jim Simons's Renaissance Technologies has the largest position in Cabot Microelectronics Corporation (NASDAQ:CCMP), worth close to $128.8 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, led by Chuck Royce, holding a $72.3 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of Phill Gross and Robert Atchinson's Adage Capital Management, Clint Carlson's Carlson Capital and Ken Griffin's Citadel Investment Group.
Judging by the fact that Cabot Microelectronics Corporation (NASDAQ:CCMP) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of funds who were dropping their positions entirely heading into Q3. Intriguingly, John Overdeck and David Siegel's Two Sigma Advisors cut the biggest position of the "upper crust" of funds monitored by Insider Monkey, comprising close to $7.3 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund sold off about $2.4 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Cabot Microelectronics Corporation (NASDAQ:CCMP). These stocks are Cornerstone OnDemand, Inc. (NASDAQ:CSOD), Taubman Centers, Inc. (NYSE:TCO), Qualys Inc (NASDAQ:QLYS), and Allegheny Technologies Incorporated (NYSE:ATI). This group of stocks' market values are similar to CCMP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSOD,29,644787,-2 TCO,14,205038,-6 QLYS,14,144956,-3 ATI,25,209165,1 Average,20.5,300987,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $301 million. That figure was $274 million in CCMP's case. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is the most popular stock in this table. On the other hand Taubman Centers, Inc. (NYSE:TCO) is the least popular one with only 14 bullish hedge fund positions. Cabot Microelectronics Corporation (NASDAQ:CCMP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CCMP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CCMP investors were disappointed as the stock returned -4.7% during the same time 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 so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.