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Were Hedge Funds Right About Souring On Canadian Natural Resources Limited (CNQ)?

Reymerlyn Martin

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Canadian Natural Resources Limited (NYSE:CNQ), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Canadian Natural Resources Limited (NYSE:CNQ) investors should be aware of a decrease in support from the world's most elite money managers of late. CNQ was in 24 hedge funds' portfolios at the end of June. There were 29 hedge funds in our database with CNQ positions at the end of the previous quarter. Our calculations also showed that CNQ isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ron Gutfleish

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 fresh hedge fund action encompassing Canadian Natural Resources Limited (NYSE:CNQ).

What have hedge funds been doing with Canadian Natural Resources Limited (NYSE:CNQ)?

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 -17% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in CNQ a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

CNQ_oct2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Millennium Management, managed by Israel Englander, holds the biggest position in Canadian Natural Resources Limited (NYSE:CNQ). Millennium Management has a $82.4 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $73.4 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism comprise Thomas E. Claugus's GMT Capital, D. E. Shaw's D E Shaw and Alex Snow's Lansdowne Partners.

Since Canadian Natural Resources Limited (NYSE:CNQ) has witnessed falling interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of fund managers that elected to cut their full holdings last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the biggest stake of the 750 funds watched by Insider Monkey, totaling about $71.4 million in stock, and Cliff Asness's AQR Capital Management was right behind this move, as the fund said goodbye to about $52.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Canadian Natural Resources Limited (NYSE:CNQ) but similarly valued. We will take a look at Newmont Mining Corp (NYSE:NEM), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Canon Inc. (NYSE:CAJ), and Square, Inc. (NYSE:SQ). This group of stocks' market values are similar to CNQ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NEM,41,777802,6 ERIC,19,415250,-1 CAJ,6,87599,-1 SQ,53,2056333,3 Average,29.75,834246,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $834 million. That figure was $425 million in CNQ's case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 6 bullish hedge fund positions. Canadian Natural Resources Limited (NYSE:CNQ) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CNQ wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CNQ investors were disappointed as the stock returned -0.1% 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 in 2019.

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

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