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Did Hedge Funds Drop The Ball On Cronos Group Inc. (CRON) ?

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 15 S&P 500 stocks among hedge funds at the end of December 2018 yielded an average return of 19.7% year-to-date, vs. a gain of 13.1% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Cronos Group Inc. (NASDAQ:CRON).

Is Cronos Group Inc. (NASDAQ:CRON) a healthy stock for your portfolio? Investors who are in the know are in a pessimistic mood. The number of long hedge fund positions went down by 6 in recent months. Our calculations also showed that cron 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

John Overdeck of Two Sigma

We’re going to analyze the key hedge fund action surrounding Cronos Group Inc. (NASDAQ:CRON).

How are hedge funds trading Cronos Group Inc. (NASDAQ:CRON)?

Heading into the first quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -50% from the second quarter of 2018. By comparison, 2 hedge funds held shares or bullish call options in CRON a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with CRON Positions

The largest stake in Cronos Group Inc. (NASDAQ:CRON) was held by Citadel Investment Group, which reported holding $6 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $4.1 million position. Other investors bullish on the company included HBK Investments, OZ Management, and Millennium Management.

Due to the fact that Cronos Group Inc. (NASDAQ:CRON) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers that slashed their entire stakes by the end of the third quarter. Interestingly, Barry Rosenstein’s JANA Partners dropped the biggest investment of the 700 funds tracked by Insider Monkey, comprising an estimated $3.3 million in stock. Joseph A. Jolson’s fund, Harvest Capital Strategies, also said goodbye to its stock, about $1.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Cronos Group Inc. (NASDAQ:CRON). These stocks are Hamilton Lane Incorporated (NASDAQ:HLNE), Grupo Aeroportuario del Centro Norte, S. A. B. de C. V. (NASDAQ:OMAB), Washington Real Estate Investment Trust (NYSE:WRE), and NetScout Systems, Inc. (NASDAQ:NTCT). This group of stocks’ market valuations are similar to CRON’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HLNE 9 40521 -3
OMAB 5 28844 0
WRE 14 95773 6
NTCT 14 92846 2
Average 10.5 64496 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $10 million in CRON’s case. Washington Real Estate Investment Trust (NYSE:WRE) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Norte, S. A. B. de C. V. (NASDAQ:OMAB) is the least popular one with only 5 bullish hedge fund positions. Cronos Group Inc. (NASDAQ:CRON) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on CRON as the stock returned 62.3% and outperformed the market by an even larger margin.

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

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