Is Carlyle Group LP (CG) Going to Burn These Hedge Funds?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Carlyle Group LP (NASDAQ:CG) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Carlyle Group LP (NASDAQ:CG) a bargain? The best stock pickers are becoming hopeful. The number of bullish hedge fund positions increased by 5 recently. Our calculations also showed that CG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). CG was in 13 hedge funds’ portfolios at the end of December. There were 8 hedge funds in our database with CG holdings at the end of the previous quarter.
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 21st century investor’s toolkit there are numerous tools market participants have at their disposal to appraise their holdings. A duo of the less known tools are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the top money managers can outclass their index-focused peers by a very impressive amount (see the details here).

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the key hedge fund action encompassing Carlyle Group LP (NASDAQ:CG).

Hedge fund activity in Carlyle Group LP (NASDAQ:CG)

Heading into the first quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 63% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CG over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is CG A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Panayotis Takis Sparaggis’s Alkeon Capital Management has the number one position in Carlyle Group LP (NASDAQ:CG), worth close to $119 million, corresponding to 0.4% of its total 13F portfolio. The second most bullish fund manager is Tom Gayner of Markel Gayner Asset Management, with a $38.8 million position; 0.5% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish include Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Bill Miller’s Miller Value Partners and Sander Gerber’s Hudson Bay Capital Management. In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to Carlyle Group LP (NASDAQ:CG), around 0.91% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, setting aside 0.66 percent of its 13F equity portfolio to CG.

Consequently, some big names were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the biggest position in Carlyle Group LP (NASDAQ:CG). Marshall Wace LLP had $5.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $2 million position during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Matthew Hulsizer’s PEAK6 Capital Management, and Louis Navellier’s Navellier & Associates.

Let’s now review hedge fund activity in other stocks similar to Carlyle Group LP (NASDAQ:CG). These stocks are Advance Auto Parts, Inc. (NYSE:AAP), WestRock Company (NYSE:WRK), Bio-Rad Laboratories, Inc. (NYSE:BIO), and Tractor Supply Company (NASDAQ:TSCO). This group of stocks’ market valuations are closest to CG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AAP 42 1621720 1
WRK 35 765253 3
BIO 44 1030931 0
TSCO 44 696994 3
Average 41.25 1028725 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.25 hedge funds with bullish positions and the average amount invested in these stocks was $1029 million. That figure was $213 million in CG’s case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand WestRock Company (NYSE:WRK) is the least popular one with only 35 bullish hedge fund positions. Compared to these stocks Carlyle Group LP (NASDAQ:CG) is even less popular than WRK. Hedge funds dodged a bullet by taking a bearish stance towards CG. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately CG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CG investors were disappointed as the stock returned -41.5% 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 most of these stocks already outperformed the market so far in Q1.

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