Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' stock picks rather than directly investing in hedge funds. 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 Civeo Corporation (NYSE:CVEO).
Civeo Corporation (NYSE:CVEO) investors should pay attention to an increase in hedge fund interest lately. Our calculations also showed that CVEO 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.
Let's take a peek at the recent hedge fund action surrounding Civeo Corporation (NYSE:CVEO).
How have hedgies been trading Civeo Corporation (NYSE:CVEO)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in CVEO a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Civeo Corporation (NYSE:CVEO) was held by Horizon Asset Management, which reported holding $87.5 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $18.4 million position. Other investors bullish on the company included Prescott Group Capital Management, Cloverdale Capital Management, and DC Capital Partners.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Gotham Asset Management, managed by Joel Greenblatt, assembled the most outsized position in Civeo Corporation (NYSE:CVEO). Gotham Asset Management had $0 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $0 million position during the quarter.
Let's now take a look at hedge fund activity in other stocks similar to Civeo Corporation (NYSE:CVEO). These stocks are MediciNova, Inc. (NASDAQ:MNOV), Covenant Transportation Group, Inc. (NASDAQ:CVTI), PCSB Financial Corporation (NASDAQ:PCSB), and Unity Biotechnology, Inc. (NASDAQ:UBX). This group of stocks' market valuations resemble CVEO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MNOV,3,3585,1 CVTI,11,21261,-1 PCSB,9,26151,0 UBX,4,9494,2 Average,6.75,15123,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $146 million in CVEO's case. Covenant Transportation Group, Inc. (NASDAQ:CVTI) is the most popular stock in this table. On the other hand MediciNova, Inc. (NASDAQ:MNOV) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Civeo Corporation (NYSE:CVEO) is more popular among hedge funds. 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 CVEO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CVEO were disappointed as the stock returned -28.6% 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.