Is California Resources Corporation (CRC) Going To Burn These Hedge Funds ?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards California Resources Corporation (NYSE:CRC).

California Resources Corporation (NYSE:CRC) was in 12 hedge funds’ portfolios at the end of June. CRC has seen a decrease in enthusiasm from smart money of late. There were 15 hedge funds in our database with CRC positions at the end of the previous quarter. Our calculations also showed that CRC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most shareholders, hedge funds are perceived as worthless, old financial vehicles of years past. While there are greater than 8000 funds in operation at the moment, Our experts hone in on the elite of this club, about 750 funds. These hedge fund managers shepherd the lion’s share of the smart money’s total capital, and by keeping an eye on their unrivaled equity investments, Insider Monkey has identified a number of investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Ron Gutfleish

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the latest hedge fund action regarding California Resources Corporation (NYSE:CRC).

What does smart money think about California Resources Corporation (NYSE:CRC)?

At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CRC over the last 16 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with CRC Positions

More specifically, Cyrus Capital Partners was the largest shareholder of California Resources Corporation (NYSE:CRC), with a stake worth $40.1 million reported as of the end of March. Trailing Cyrus Capital Partners was Masters Capital Management, which amassed a stake valued at $30.4 million. Elm Ridge Capital, Orbis Investment Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that California Resources Corporation (NYSE:CRC) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedge funds that slashed their positions entirely heading into Q3. Interestingly, Richard Mashaal’s Rima Senvest Management said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, totaling about $18.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $5.9 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to California Resources Corporation (NYSE:CRC). These stocks are Materialise NV (NASDAQ:MTLS), GMS Inc. (NYSE:GMS), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), and WAVE Life Sciences Ltd. (NASDAQ:WVE). This group of stocks’ market caps are closest to CRC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTLS 2 10287 -2
GMS 20 80650 0
JBSS 10 95065 -1
WVE 20 339098 -4
Average 13 131275 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $116 million in CRC’s case. GMS Inc. (NYSE:GMS) is the most popular stock in this table. On the other hand Materialise NV (NASDAQ:MTLS) is the least popular one with only 2 bullish hedge fund positions. California Resources Corporation (NYSE:CRC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CRC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CRC investors were disappointed as the stock returned -48.2% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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