It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like CRA International, Inc. (NASDAQ:CRAI).
CRA International, Inc. (NASDAQ:CRAI) has experienced an increase in enthusiasm from smart money of late. CRAI was in 15 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with CRAI holdings at the end of the previous quarter. Our calculations also showed that CRAI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the key hedge fund action regarding CRA International, Inc. (NASDAQ:CRAI).
What have hedge funds been doing with CRA International, Inc. (NASDAQ:CRAI)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CRAI over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in CRA International, Inc. (NASDAQ:CRAI), which was worth $18.7 million at the end of the third quarter. On the second spot was Millennium Management which amassed $5.6 million worth of shares. AQR Capital Management, Osmium Partners, and Marshall Wace 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 Osmium Partners allocated the biggest weight to CRA International, Inc. (NASDAQ:CRAI), around 4.03% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.17 percent of its 13F equity portfolio to CRAI.
Consequently, some big names have jumped into CRA International, Inc. (NASDAQ:CRAI) headfirst. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, established the biggest position in CRA International, Inc. (NASDAQ:CRAI). Algert Coldiron Investors had $0.4 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.4 million position during the quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CRA International, Inc. (NASDAQ:CRAI) but similarly valued. These stocks are Neptune Wellness Solutions Inc. (NASDAQ:NEPT), GTY Technology Holdings, Inc. (NASDAQ:GTYH), Metropolitan Bank Holding Corp. (NYSE:MCB), and Diana Shipping Inc. (NYSE:DSX). All of these stocks’ market caps are closest to CRAI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NEPT | 7 | 49362 | -1 |
| GTYH | 4 | 19976 | 0 |
| MCB | 8 | 56934 | 2 |
| DSX | 9 | 25661 | 0 |
| Average | 7 | 37983 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $45 million in CRAI’s case. Diana Shipping Inc. (NYSE:DSX) is the most popular stock in this table. On the other hand GTY Technology Holdings, Inc. (NASDAQ:GTYH) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks CRA International, Inc. (NASDAQ:CRAI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CRAI as the stock returned 22.7% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
