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Did Hedge Funds Make The Right Call On Clarivate Plc (CCC)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Clarivate Plc (NYSE:CCC) and determine whether hedge funds had an edge regarding this stock.

Clarivate Plc (NYSE:CCC) was in 28 hedge funds’ portfolios at the end of March. CCC has seen a decrease in enthusiasm from smart money in recent months. There were 45 hedge funds in our database with CCC positions at the end of the previous quarter. Our calculations also showed that CCC 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Jeffrey Talpins of Element Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the fresh hedge fund action surrounding Clarivate Plc (NYSE:CCC).

Hedge fund activity in Clarivate Plc (NYSE:CCC)

At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in CCC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CCC A Good Stock To Buy?

More specifically, Select Equity Group was the largest shareholder of Clarivate Plc (NYSE:CCC), with a stake worth $315.2 million reported as of the end of September. Trailing Select Equity Group was Brahman Capital, which amassed a stake valued at $93.5 million. 40 North Management, JS Capital, and D1 Capital Partners 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 Antipodean Advisors allocated the biggest weight to Clarivate Plc (NYSE:CCC), around 24.42% of its 13F portfolio. Brahman Capital is also relatively very bullish on the stock, earmarking 10.99 percent of its 13F equity portfolio to CCC.

Seeing as Clarivate Plc (NYSE:CCC) has faced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of funds who sold off their positions entirely heading into Q4. Intriguingly, Robert Henry Lynch’s Aristeia Capital said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising about $28.6 million in stock. Mitch Kuflik and Rob Sobel’s fund, Brahman Capital, also dropped its stock, about $23.6 million worth. These transactions are important to note, as total hedge fund interest was cut by 17 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Clarivate Plc (NYSE:CCC) but similarly valued. We will take a look at The Western Union Company (NYSE:WU), Monolithic Power Systems, Inc. (NASDAQ:MPWR), Peloton Interactive, Inc. (NASDAQ:PTON), and Weibo Corp (NASDAQ:WB). This group of stocks’ market values match CCC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WU 34 339513 5
MPWR 23 390299 -4
PTON 36 748425 6
WB 10 182637 -1
Average 25.75 415219 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $415 million. That figure was $818 million in CCC’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 10 bullish hedge fund positions. Clarivate Plc (NYSE:CCC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 15.5 percentage points. Unfortunately CCC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CCC were disappointed as the stock returned 7.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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