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 The Carlyle Group Inc (NASDAQ:CG).
Is The Carlyle Group Inc (NASDAQ:CG) going to take off soon? Investors who are in the know were taking an optimistic view. The number of bullish hedge fund positions improved by 5 recently. The Carlyle Group Inc (NASDAQ:CG) was in 26 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 21 hedge funds in our database with CG positions at the end of the fourth quarter.
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 115 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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a gander at the latest hedge fund action regarding The Carlyle Group Inc (NASDAQ:CG).
Do Hedge Funds Think CG Is A Good Stock To Buy Now?
At Q1’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the fourth quarter of 2020. By comparison, 16 hedge funds held shares or bullish call options in CG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Panayotis Takis Sparaggis’s Alkeon Capital Management has the number one position in The Carlyle Group Inc (NASDAQ:CG), worth close to $220.6 million, amounting to 0.3% of its total 13F portfolio. Coming in second is Samlyn Capital, managed by Robert Pohly, which holds a $108.1 million position; 1.5% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism encompass Tom Gayner’s Markel Gayner Asset Management, Paul Marshall and Ian Wace’s Marshall Wace LLP and Renaissance Technologies. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to The Carlyle Group Inc (NASDAQ:CG), around 4.23% of its 13F portfolio. Full18 Capital is also relatively very bullish on the stock, setting aside 1.88 percent of its 13F equity portfolio to CG.
Now, key money managers have been driving this bullishness. Renaissance Technologies, initiated the biggest position in The Carlyle Group Inc (NASDAQ:CG). Renaissance Technologies had $18.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $2.2 million investment in the stock during the quarter. The following funds were also among the new CG investors: Ken Griffin’s Citadel Investment Group, Gregg Moskowitz’s Interval Partners, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Carlyle Group Inc (NASDAQ:CG) but similarly valued. We will take a look at UDR, Inc. (NYSE:UDR), Open Text Corporation (NASDAQ:OTEX), Icahn Enterprises LP (NASDAQ:IEP), Brown & Brown, Inc. (NYSE:BRO), Enel Americas S.A. (NYSE:ENIA), F5 Networks, Inc. (NASDAQ:FFIV), and Bentley Systems, Incorporated (NASDAQ:BSY). This group of stocks’ market valuations are closest to CG’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $2070 million. That figure was $506 million in CG’s case. UDR, Inc. (NYSE:UDR) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 4 bullish hedge fund positions. The Carlyle Group Inc (NASDAQ:CG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CG is 82.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and still beat the market by 6.7 percentage points. Hedge funds were also right about betting on CG as the stock returned 30.5% since the end of Q1 (through 7/9) 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.