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Hedge Funds Have Never Been This Bullish On Canadian Natural Resources Limited (CNQ)

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 9 percentage points since the end of the third quarter of 2018 as investors worried over the possible ramifications of rising interest rates and escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Canadian Natural Resources Limited (NYSE:CNQ) and see how the stock is affected by the recent hedge fund activity.

Is Canadian Natural Resources Limited (NYSE:CNQ) a marvelous investment today? Prominent investors are buying. The number of bullish hedge fund bets moved up by 5 recently. Our calculations also showed that cnq isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

We’re going to take a peek at the latest hedge fund action regarding Canadian Natural Resources Limited (NYSE:CNQ).

How are hedge funds trading Canadian Natural Resources Limited (NYSE:CNQ)?

Heading into the second quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CNQ over the last 15 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CNQ Positions

Among these funds, Polar Capital held the most valuable stake in Canadian Natural Resources Limited (NYSE:CNQ), which was worth $76.7 million at the end of the first quarter. On the second spot was Arrowstreet Capital which amassed $71.4 million worth of shares. Moreover, GMT Capital, Point72 Asset Management, and AQR Capital Management were also bullish on Canadian Natural Resources Limited (NYSE:CNQ), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, specific money managers have jumped into Canadian Natural Resources Limited (NYSE:CNQ) headfirst. Lansdowne Partners, managed by Alex Snow, created the biggest position in Canadian Natural Resources Limited (NYSE:CNQ). Lansdowne Partners had $40.6 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $19.9 million investment in the stock during the quarter. The other funds with brand new CNQ positions are Till Bechtolsheimer’s Arosa Capital Management, Vince Maddi and Shawn Brennan’s SIR Capital Management, and Zach Schreiber’s Point State Capital.

Let’s go over hedge fund activity in other stocks similar to Canadian Natural Resources Limited (NYSE:CNQ). We will take a look at Ferrari N.V. (NYSE:RACE), Red Hat, Inc. (NYSE:RHT), Xilinx, Inc. (NASDAQ:XLNX), and Nokia Corporation (NYSE:NOK). This group of stocks’ market valuations are closest to CNQ’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RACE 28 1050992 0
RHT 66 5213219 1
XLNX 56 1633835 8
NOK 26 386822 -1
Average 44 2071217 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $2071 million. That figure was $644 million in CNQ’s case. Red Hat, Inc. (NYSE:RHT) is the most popular stock in this table. On the other hand Nokia Corporation (NYSE:NOK) is the least popular one with only 26 bullish hedge fund positions. Canadian Natural Resources Limited (NYSE:CNQ) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 CNQ wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CNQ investors were disappointed as the stock returned -1.6% during the same time 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 so far in Q2.

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

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