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 Cinemark Holdings, Inc. (NYSE:CNK).
Cinemark Holdings, Inc. (NYSE:CNK) was in 20 hedge funds’ portfolios at the end of the first quarter of 2019. CNK shareholders have witnessed an increase in hedge fund interest lately. There were 17 hedge funds in our database with CNK holdings at the end of the previous quarter. Our calculations also showed that CNK isn’t among the 30 most popular stocks among hedge funds.
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 take a look at the recent hedge fund action surrounding Cinemark Holdings, Inc. (NYSE:CNK).
What does the smart money think about Cinemark Holdings, Inc. (NYSE:CNK)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in CNK over the last 15 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Cinemark Holdings, Inc. (NYSE:CNK), which was worth $95.3 million at the end of the first quarter. On the second spot was Balyasny Asset Management which amassed $23.2 million worth of shares. Moreover, Arrowstreet Capital, Rivulet Capital, and Two Sigma Advisors were also bullish on Cinemark Holdings, Inc. (NYSE:CNK), allocating a large percentage of their portfolios to this stock.
Now, some big names have jumped into Cinemark Holdings, Inc. (NYSE:CNK) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most valuable position in Cinemark Holdings, Inc. (NYSE:CNK). Balyasny Asset Management had $23.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $3.6 million investment in the stock during the quarter. The following funds were also among the new CNK investors: Ken Griffin’s Citadel Investment Group, Mike Vranos’s Ellington, and Minhua Zhang’s Weld Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cinemark Holdings, Inc. (NYSE:CNK) but similarly valued. These stocks are Webster Financial Corporation (NYSE:WBS), Cameco Corporation (NYSE:CCJ), Eaton Vance Corp (NYSE:EV), and FibroGen Inc (NASDAQ:FGEN). All of these stocks’ market caps resemble CNK’s market cap.
|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 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $241 million. That figure was $226 million in CNK’s case. Webster Financial Corporation (NYSE:WBS) 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. Cinemark Holdings, Inc. (NYSE:CNK) 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 CNK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CNK investors were disappointed as the stock returned -5% 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.