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Did Hedge Funds Make The Right Call On Continental Resources, Inc. (CLR) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Continental Resources, Inc. (NYSE:CLR) based on that data and determine whether they were really smart about the stock.

Is Continental Resources, Inc. (NYSE:CLR) going to take off soon? Money managers were selling. The number of long hedge fund positions fell by 12 recently. Our calculations also showed that CLR 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). CLR was in 26 hedge funds’ portfolios at the end of March. There were 38 hedge funds in our database with CLR holdings at the end of the previous quarter.

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 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 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.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

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. Now we’re going to take a peek at the latest hedge fund action surrounding Continental Resources, Inc. (NYSE:CLR).

Hedge fund activity in Continental Resources, Inc. (NYSE:CLR)

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from the previous quarter. On the other hand, there were a total of 31 hedge funds with a bullish position in CLR a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in Continental Resources, Inc. (NYSE:CLR) was held by D E Shaw, which reported holding $25.3 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $18.9 million position. Other investors bullish on the company included Marshall Wace LLP, Millennium Management, and Winton Capital Management. In terms of the portfolio weights assigned to each position Centenus Global Management allocated the biggest weight to Continental Resources, Inc. (NYSE:CLR), around 0.63% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.33 percent of its 13F equity portfolio to CLR.

Judging by the fact that Continental Resources, Inc. (NYSE:CLR) has faced falling interest from hedge fund managers, it’s safe to say that there were a few hedgies who were dropping their entire stakes by the end of the first quarter. Interestingly, Todd J. Kantor’s Encompass Capital Advisors cut the largest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $69.8 million in stock. Steve Cohen’s fund, Point72 Asset Management, also said goodbye to its stock, about $48.9 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 12 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Continental Resources, Inc. (NYSE:CLR) but similarly valued. We will take a look at Stantec Inc. (NYSE:STN), Brixmor Property Group Inc (NYSE:BRX), Affiliated Managers Group, Inc. (NYSE:AMG), and Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR). This group of stocks’ market caps resemble CLR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STN 12 52596 3
BRX 28 79124 12
AMG 27 309620 -11
ASR 4 31709 -6
Average 17.75 118262 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $67 million in CLR’s case. Brixmor Property Group Inc (NYSE:BRX) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) is the least popular one with only 4 bullish hedge fund positions. Continental Resources, Inc. (NYSE:CLR) 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 CLR as the stock returned 129.5% 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.