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Did Hedge Funds Make The Right Call On Charles River Laboratories International Inc. (CRL) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtCharles River Laboratories International Inc. (NYSE:CRL) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Charles River Laboratories International Inc. (NYSE:CRL) ready to rally soon? Hedge funds were taking an optimistic view. The number of bullish hedge fund positions moved up by 4 in recent months. Our calculations also showed that CRL 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.

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 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 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.

Andrew Sandler of Sandler Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. Keeping this in mind we’re going to take a glance at the latest hedge fund action surrounding Charles River Laboratories International Inc. (NYSE:CRL).

How are hedge funds trading Charles River Laboratories International Inc. (NYSE:CRL)?

At Q1’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in CRL a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Charles River Laboratories International Inc. (NYSE:CRL), with a stake worth $171.1 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $168.8 million. Ariel Investments, Healthcor Management LP, and Iridian Asset 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 Kerrisdale Capital allocated the biggest weight to Charles River Laboratories International Inc. (NYSE:CRL), around 6.01% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, earmarking 4.88 percent of its 13F equity portfolio to CRL.

With a general bullishness amongst the heavyweights, some big names have jumped into Charles River Laboratories International Inc. (NYSE:CRL) headfirst. Sandler Capital Management, managed by Andrew Sandler, assembled the biggest position in Charles River Laboratories International Inc. (NYSE:CRL). Sandler Capital Management had $22.9 million invested in the company at the end of the quarter. Kevin Molloy’s Iron Triangle Partners also initiated a $12.6 million position during the quarter. The other funds with new positions in the stock are Murray Stahl’s Horizon Asset Management, Krishen Sud’s Sivik Global Healthcare, and David Harding’s Winton Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Charles River Laboratories International Inc. (NYSE:CRL). We will take a look at Hubbell Incorporated (NYSE:HUBB), Assurant, Inc. (NYSE:AIZ), Alteryx, Inc. (NYSE:AYX), and Universal Display Corporation (NASDAQ:OLED). This group of stocks’ market valuations match CRL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HUBB 15 272338 -8
AIZ 33 782609 8
AYX 43 1019690 -1
OLED 24 222953 -7
Average 28.75 574398 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $574 million. That figure was $863 million in CRL’s case. Alteryx, Inc. (NYSE:AYX) is the most popular stock in this table. On the other hand Hubbell Incorporated (NYSE:HUBB) is the least popular one with only 15 bullish hedge fund positions. Charles River Laboratories International Inc. (NYSE:CRL) 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 CRL as the stock returned 38.1% 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.