Did Hedge Funds Drop The Ball On California Resources Corporation (CRC) ?

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards California Resources Corporation (NYSE:CRC) during the quarter below.

California Resources Corporation (NYSE:CRC) has experienced a decrease in activity from the world’s largest hedge funds lately. CRC was in 20 hedge funds’ portfolios at the end of December. There were 22 hedge funds in our database with CRC holdings at the end of the previous quarter. Our calculations also showed that crc 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 32 percentage points since May 2014 through March 12, 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.

Ron Gutfleish

We’re going to view the latest hedge fund action regarding California Resources Corporation (NYSE:CRC).

Hedge fund activity in California Resources Corporation (NYSE:CRC)

At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CRC over the last 14 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.

No of Hedge Funds with CRC Positions

Among these funds, Masters Capital Management held the most valuable stake in California Resources Corporation (NYSE:CRC), which was worth $34.1 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $23 million worth of shares. Moreover, Renaissance Technologies, Elm Ridge Capital, and Crescent Park Management were also bullish on California Resources Corporation (NYSE:CRC), allocating a large percentage of their portfolios to this stock.

Due to the fact that California Resources Corporation (NYSE:CRC) has experienced a decline in interest from the smart money, it’s safe to say that there were a few hedge funds that slashed their entire stakes last quarter. Intriguingly, Stephen C. Freidheim’s Cyrus Capital Partners dropped the largest investment of all the hedgies followed by Insider Monkey, worth an estimated $70.5 million in stock. George Soros’s fund, Soros Fund Management, also dumped its stock, about $12.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to California Resources Corporation (NYSE:CRC). We will take a look at Fate Therapeutics Inc (NASDAQ:FATE), Churchill Capital Corp (NYSE:CCC), NextPoint Residential Trust Inc (NYSE:NXRT), and Chatham Lodging Trust (NYSE:CLDT). This group of stocks’ market values are closest to CRC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FATE 15 285651 -2
CCC 24 316832 -1
NXRT 9 139879 0
CLDT 10 44534 3
Average 14.5 196724 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $138 million in CRC’s case. Churchill Capital Corp (NYSE:CCC) is the most popular stock in this table. On the other hand NextPoint Residential Trust Inc (NYSE:NXRT) is the least popular one with only 9 bullish hedge fund positions. California Resources Corporation (NYSE:CRC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on CRC as the stock returned 66.3% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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