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Is Canadian Natural Resources Limited (CNQ) Going to Burn These Hedge Funds?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Canadian Natural Resources Limited (NYSE:CNQ) and determine whether hedge funds skillfully traded this stock.

Canadian Natural Resources Limited (NYSE:CNQ) was in 28 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. CNQ has experienced an increase in hedge fund sentiment recently. There were 26 hedge funds in our database with CNQ holdings at the end of March. Our calculations also showed that CNQ 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a look at the key hedge fund action surrounding Canadian Natural Resources Limited (NYSE:CNQ).

Hedge fund activity in Canadian Natural Resources Limited (NYSE:CNQ)

Heading into the third quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the first quarter of 2020. On the other hand, there were a total of 24 hedge funds with a bullish position in CNQ a year ago. 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, Citadel Investment Group was the largest shareholder of Canadian Natural Resources Limited (NYSE:CNQ), with a stake worth $89.5 million reported as of the end of September. Trailing Citadel Investment Group was Luminus Management, which amassed a stake valued at $81.9 million. Point72 Asset Management, Holocene Advisors, and Adage Capital Management 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 MAK Capital One allocated the biggest weight to Canadian Natural Resources Limited (NYSE:CNQ), around 11.39% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, dishing out 10.63 percent of its 13F equity portfolio to CNQ.

As one would reasonably expect, some big names were leading the bulls’ herd. Luminus Management, managed by Jonathan Barrett and Paul Segal, established the biggest position in Canadian Natural Resources Limited (NYSE:CNQ). Luminus Management had $81.9 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $56.9 million position during the quarter. The following funds were also among the new CNQ investors: Israel Englander’s Millennium Management, Todd J. Kantor’s Encompass Capital Advisors, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks similar to Canadian Natural Resources Limited (NYSE:CNQ). We will take a look at AMETEK, Inc. (NYSE:AME), AmerisourceBergen Corporation (NYSE:ABC), Carvana Co. (NYSE:CVNA), Alexandria Real Estate Equities Inc (NYSE:ARE), Realty Income Corporation (NYSE:O), Hilton Worldwide Holdings Inc (NYSE:HLT), and Rogers Communications Inc. (NYSE:RCI). This group of stocks’ market caps match CNQ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AME 40 952884 7
ABC 40 646674 -1
CVNA 57 3587877 5
ARE 18 53382 -11
O 17 185310 -8
HLT 53 4467377 10
RCI 16 340545 0
Average 34.4 1462007 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.4 hedge funds with bullish positions and the average amount invested in these stocks was $1462 million. That figure was $556 million in CNQ’s case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 16 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. Our overall hedge fund sentiment score for CNQ is 46.3. 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 negative signal and 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately CNQ wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CNQ investors were disappointed as the stock returned -5.7% since Q2 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 most of these stocks already outperformed the market in 2020.

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