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 Cannae Holdings, Inc. (NYSE:CNNE) and determine whether hedge funds had an edge regarding this stock.
Cannae Holdings, Inc. (NYSE:CNNE) was in 43 hedge funds’ portfolios at the end of June. The all time high for this statistics is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CNNE shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. There were 20 hedge funds in our database with CNNE holdings at the end of March. Our calculations also showed that CNNE 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s check out the fresh hedge fund action regarding Cannae Holdings, Inc. (NYSE:CNNE).
How are hedge funds trading Cannae Holdings, Inc. (NYSE:CNNE)?
At the end of June, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 115% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CNNE over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Nitorum Capital was the largest shareholder of Cannae Holdings, Inc. (NYSE:CNNE), with a stake worth $153.1 million reported as of the end of September. Trailing Nitorum Capital was Empyrean Capital Partners, which amassed a stake valued at $78.1 million. Azora Capital, Millennium Management, and Eminence Capital 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 Azora Capital allocated the biggest weight to Cannae Holdings, Inc. (NYSE:CNNE), around 11.86% of its 13F portfolio. Strycker View Capital is also relatively very bullish on the stock, setting aside 8.34 percent of its 13F equity portfolio to CNNE.
As aggregate interest increased, specific money managers have jumped into Cannae Holdings, Inc. (NYSE:CNNE) headfirst. Azora Capital, managed by Ravi Chopra, created the largest position in Cannae Holdings, Inc. (NYSE:CNNE). Azora Capital had $72.6 million invested in the company at the end of the quarter. Ricky Sandler’s Eminence Capital also initiated a $28.7 million position during the quarter. The following funds were also among the new CNNE investors: Michael Platt and William Reeves’s BlueCrest Capital Mgmt., Zachary Miller’s Parian Global Management, and Anand Parekh’s Alyeska Investment Group.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cannae Holdings, Inc. (NYSE:CNNE) but similarly valued. We will take a look at Cloudera, Inc. (NYSE:CLDR), Ballard Power Systems Inc. (NASDAQ:BLDP), Novanta Inc. (NASDAQ:NOVT), Portland General Electric Company (NYSE:POR), Perspecta Inc. (NYSE:PRSP), BRP Inc. (NASDAQ:DOOO), and Curtiss-Wright Corp. (NYSE:CW). This group of stocks’ market valuations match CNNE’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $323 million. That figure was $596 million in CNNE’s case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand BRP Inc. (NASDAQ:DOOO) is the least popular one with only 14 bullish hedge fund positions. Cannae Holdings, Inc. (NYSE:CNNE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CNNE is 85.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately CNNE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CNNE were disappointed as the stock returned -8.2% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.