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Did Hedge Funds Make The Right Call On Cenovus Energy Inc (CVE)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Cenovus Energy Inc (NYSE:CVE) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Cenovus Energy Inc (NYSE:CVE) has experienced a decrease in hedge fund interest recently. Our calculations also showed that CVE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding Cenovus Energy Inc (NYSE:CVE).

How have hedgies been trading Cenovus Energy Inc (NYSE:CVE)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in CVE a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is CVE A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the biggest position in Cenovus Energy Inc (NYSE:CVE), worth close to $44.4 million, amounting to 0.3% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $18.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism include Jonathan Barrett and Paul Segal’s Luminus Management, Ken Griffin’s Citadel Investment Group and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Cenovus Energy Inc (NYSE:CVE), around 1.37% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, earmarking 0.46 percent of its 13F equity portfolio to CVE.

Since Cenovus Energy Inc (NYSE:CVE) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers who were dropping their entire stakes in the first quarter. It’s worth mentioning that Michael Kaufman’s MAK Capital One sold off the biggest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $54.8 million in stock, and Joseph Sirdevan’s Galibier Capital Management was right behind this move, as the fund said goodbye to about $30.6 million worth. These moves are interesting, as total hedge fund interest was cut by 7 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cenovus Energy Inc (NYSE:CVE) but similarly valued. We will take a look at Companhia Energetica Minas Gerais (NYSE:CIG), Corporate Office Properties Trust (NYSE:OFC), Manchester United PLC (NYSE:MANU), and TreeHouse Foods Inc. (NYSE:THS). All of these stocks’ market caps are similar to CVE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CIG 10 20207 1
OFC 17 158054 -4
MANU 8 27822 -2
THS 28 225828 1
Average 15.75 107978 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $103 million in CVE’s case. TreeHouse Foods Inc. (NYSE:THS) is the most popular stock in this table. On the other hand Manchester United PLC (NYSE:MANU) is the least popular one with only 8 bullish hedge fund positions. Cenovus Energy Inc (NYSE:CVE) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CVE as the stock returned 131.2% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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