World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Carnival Corporation (NYSE:CCL) shareholders have witnessed a decrease in enthusiasm from smart money recently. CCL was in 28 hedge funds' portfolios at the end of March. There were 39 hedge funds in our database with CCL holdings at the end of the previous quarter. Our calculations also showed that CCL isn't among the 30 most popular stocks among hedge funds.
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.
We're going to view the key hedge fund action regarding Carnival Corporation (NYSE:CCL).
What have hedge funds been doing with Carnival Corporation (NYSE:CCL)?
At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CCL over the last 15 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Carnival Corporation (NYSE:CCL) was held by Two Sigma Advisors, which reported holding $141.1 million worth of stock at the end of March. It was followed by GLG Partners with a $118.8 million position. Other investors bullish on the company included Arrowstreet Capital, AQR Capital Management, and Polar Capital.
Due to the fact that Carnival Corporation (NYSE:CCL) has experienced a decline in interest from hedge fund managers, it's easy to see that there were a few fund managers who sold off their positions entirely by the end of the third quarter. Interestingly, Richard Barrera's Roystone Capital Partners sold off the largest stake of the 700 funds followed by Insider Monkey, comprising about $14.4 million in stock, and Glenn Russell Dubin's Highbridge Capital Management was right behind this move, as the fund dumped about $7.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 11 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to Carnival Corporation (NYSE:CCL). We will take a look at Delta Air Lines, Inc. (NYSE:DAL), Williams Companies, Inc. (NYSE:WMB), Activision Blizzard, Inc. (NASDAQ:ATVI), and Fiserv, Inc. (NASDAQ:FISV). This group of stocks' market caps are similar to CCL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DAL,60,6467050,-13 WMB,32,1694369,-7 ATVI,50,2741166,-9 FISV,47,2541202,18 Average,47.25,3360947,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.25 hedge funds with bullish positions and the average amount invested in these stocks was $3361 million. That figure was $568 million in CCL's case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand Williams Companies, Inc. (NYSE:WMB) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Carnival Corporation (NYSE:CCL) is even less popular than WMB. Hedge funds clearly dropped the ball on CCL as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on CCL as the stock returned 2.6% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.