Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Cabot Corp (NYSE:CBT).
Cabot Corp (NYSE:CBT) investors should be aware of a decrease in enthusiasm from smart money in recent months. CBT was in 19 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with CBT positions at the end of the previous quarter. At the end of this article we will also compare CBT to other stocks including Outfront Media Inc (NYSE:OUT), Rayonier Inc. (NYSE:RYN), and Monolithic Power Systems, Inc. (NASDAQ:MPWR) to get a better sense of its popularity.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
How have hedgies been trading Cabot Corp (NYSE:CBT)?
At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 5% dip from the second quarter of 2016. By comparison, 21 hedge funds held shares or bullish call options in CBT heading into this year, and 28 were long the stock a quarter before that, so hedge fund ownership remains at depressed levels. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Cliff Asness’ AQR Capital Management has the number one position in Cabot Corp (NYSE:CBT), worth close to $112.6 million. The second largest stake is held by Royce & Associates, led by Chuck Royce, holding a $19.1 million position. Other members of the smart money with similar optimism consist of Joel Greenblatt’s Gotham Asset Management, Jim Simons’ Renaissance Technologies, and Israel Englander’s Millennium Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.