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Was The Smart Money Right About Chase Corporation (CCF)?

Abigail Fisher

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we are going to take a closer look at the smart money sentiment towards Chase Corporation (NYSE:CCF).

Chase Corporation (NYSE:CCF) shares haven't seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of the fourth quarter of 2019. 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 LendingClub Corp (NYSE:LC), Criteo SA (NASDAQ:CRTO), and Middlesex Water Company (NASDAQ:MSEX) to gather more data points. Our calculations also showed that CCF isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.

[caption id="attachment_193003" align="aligncenter" width="399"] Chuck Royce of Royce & Associates[/caption]

Chuck Royce

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a glance at the recent hedge fund action surrounding Chase Corporation (NYSE:CCF).

How are hedge funds trading Chase Corporation (NYSE:CCF)?

Heading into the first quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in CCF a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Chase Corporation (NYSE:CCF), with a stake worth $46.8 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $20.7 million. Minerva Advisors, AltraVue Capital, and Winton Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Minerva Advisors allocated the biggest weight to Chase Corporation (NYSE:CCF), around 10.23% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, dishing out 2.72 percent of its 13F equity portfolio to CCF.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Quantamental Technologies. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).

Let's also examine hedge fund activity in other stocks similar to Chase Corporation (NYSE:CCF). We will take a look at LendingClub Corp (NYSE:LC), Criteo SA (NASDAQ:CRTO), Middlesex Water Company (NASDAQ:MSEX), and TG Therapeutics Inc (NASDAQ:TGTX). All of these stocks' market caps are closest to CCF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LC,8,3152,0 CRTO,10,114490,-3 MSEX,9,52214,-1 TGTX,22,320444,3 Average,12.25,122575,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $123 million. That figure was $97 million in CCF's case. TG Therapeutics Inc (NASDAQ:TGTX) is the most popular stock in this table. On the other hand LendingClub Corp (NYSE:LC) is the least popular one with only 8 bullish hedge fund positions. Chase Corporation (NYSE:CCF) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately CCF wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CCF investors were disappointed as the stock returned -18.4% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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