Hedge Funds Are Buying Canadian Pacific Railway Limited (CP)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Canadian Pacific Railway Limited (NYSE:CP) and determine whether the smart money was really smart about this stock.

Canadian Pacific Railway Limited (NYSE:CP) was in 36 hedge funds’ portfolios at the end of June. The all time high for this statistics is 40. CP investors should pay attention to an increase in hedge fund sentiment lately. There were 32 hedge funds in our database with CP holdings at the end of March. Our calculations also showed that CP isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 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.

John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a look at the key hedge fund action surrounding Canadian Pacific Railway Limited (NYSE:CP).

How have hedgies been trading Canadian Pacific Railway Limited (NYSE:CP)?

At the end of June, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CP over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, John Armitage’s Egerton Capital Limited has the number one position in Canadian Pacific Railway Limited (NYSE:CP), worth close to $798.9 million, accounting for 5.9% of its total 13F portfolio. Sitting at the No. 2 spot is Holocene Advisors, managed by Brandon Haley, which holds a $127.3 million position; 1.1% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions include Ken Griffin’s Citadel Investment Group, Aaron Cowen’s Suvretta Capital Management and Greg Poole’s Echo Street Capital Management. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to Canadian Pacific Railway Limited (NYSE:CP), around 11.48% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, setting aside 6.52 percent of its 13F equity portfolio to CP.

As industrywide interest jumped, some big names were breaking ground themselves. Suvretta Capital Management, managed by Aaron Cowen, assembled the biggest position in Canadian Pacific Railway Limited (NYSE:CP). Suvretta Capital Management had $107.9 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $26.9 million position during the quarter. The other funds with brand new CP positions are Dmitry Balyasny’s Balyasny Asset Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Robert Vincent McHugh’s Jade Capital Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to Canadian Pacific Railway Limited (NYSE:CP). We will take a look at Eni SpA (NYSE:E), Kinder Morgan Inc (NYSE:KMI), Sempra Energy (NYSE:SRE), Snap Inc. (NYSE:SNAP), The Bank of New York Mellon Corporation (NYSE:BK), Bank of Montreal (NYSE:BMO), and Constellation Brands, Inc. (NYSE:STZ). This group of stocks’ market caps are similar to CP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
E 8 43125 3
KMI 50 1090828 3
SRE 35 635290 8
SNAP 49 1601957 1
BK 48 4431288 -4
BMO 13 107019 0
STZ 53 1653433 3
Average 36.6 1366134 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $1366 million. That figure was $1636 million in CP’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 8 bullish hedge fund positions. Canadian Pacific Railway Limited (NYSE:CP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CP is 67.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on CP, though not to the same extent, as the stock returned 15.8% during the first two months of Q3 and outperformed the market.

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