Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. 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 Cameco Corporation (NYSE:CCJ).
Cameco Corporation (NYSE:CCJ) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds’ portfolios at the end of March. At the end of this article we will also compare CCJ to other stocks including Eaton Vance Corp (NYSE:EV), FibroGen Inc (NASDAQ:FGEN), and Portland General Electric Company (NYSE:POR) to get a better sense of its popularity.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let’s analyze the recent hedge fund action regarding Cameco Corporation (NYSE:CCJ).
How have hedgies been trading Cameco Corporation (NYSE:CCJ)?
At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in CCJ a year ago. So, let’s find out 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, Phill Gross and Robert Atchinson’s Adage Capital Management has the most valuable position in Cameco Corporation (NYSE:CCJ), worth close to $124.3 million, amounting to 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Kopernik Global Investors, led by David Iben, holding a $111.5 million position; 19.5% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions consist of John Burbank’s Passport Capital, Amit Wadhwaney’s Moerus Capital Management and Carson Yost’s Yost Capital Management.
Due to the fact that Cameco Corporation (NYSE:CCJ) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management cut the largest position of the “upper crust” of funds tracked by Insider Monkey, valued at about $15.7 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $7.3 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to Cameco Corporation (NYSE:CCJ). These stocks are Eaton Vance Corp (NYSE:EV), FibroGen Inc (NASDAQ:FGEN), Portland General Electric Company (NYSE:POR), and The Hanover Insurance Group, Inc. (NYSE:THG). This group of stocks’ market valuations resemble CCJ’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 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $351 million in CCJ’s case. The Hanover Insurance Group, Inc. (NYSE:THG) is the most popular stock in this table. On the other hand Eaton Vance Corp (NYSE:EV) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Cameco Corporation (NYSE:CCJ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CCJ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CCJ were disappointed as the stock returned -14.9% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.