We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Central Pacific Financial Corp. (NYSE:CPF).
Central Pacific Financial Corp. (NYSE:CPF) shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. CPF was in 12 hedge funds’ portfolios at the end of June. There were 16 hedge funds in our database with CPF holdings at the end of the previous quarter. Our calculations also showed that CPF isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 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.
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 go over the new hedge fund action encompassing Central Pacific Financial Corp. (NYSE:CPF).
How are hedge funds trading Central Pacific Financial Corp. (NYSE:CPF)?
At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the first quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in CPF a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Central Pacific Financial Corp. (NYSE:CPF), which was worth $21.1 million at the end of the second quarter. On the second spot was GLG Partners which amassed $10.1 million worth of shares. Moreover, Prospector Partners, Arrowstreet Capital, and AQR Capital Management were also bullish on Central Pacific Financial Corp. (NYSE:CPF), allocating a large percentage of their portfolios to this stock.
Because Central Pacific Financial Corp. (NYSE:CPF) has faced a decline in interest from the smart money, we can see that there was a specific group of hedge funds that decided to sell off their entire stakes last quarter. Intriguingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital dropped the biggest investment of all the hedgies monitored by Insider Monkey, comprising close to $0.8 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also cut its stock, about $0.6 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Central Pacific Financial Corp. (NYSE:CPF) but similarly valued. These stocks are The Buckle, Inc. (NYSE:BKE), The Gorman-Rupp Company (NYSEAMEX:GRC), Tidewater Inc. (NYSE:TDW), and Everi Holdings Inc (NYSE:EVRI). This group of stocks’ market valuations resemble CPF’s market valuation.
|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 15 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $73 million in CPF’s case. Everi Holdings Inc (NYSE:EVRI) is the most popular stock in this table. On the other hand The Gorman-Rupp Company (NYSEAMEX:GRC) is the least popular one with only 7 bullish hedge fund positions. Central Pacific Financial Corp. (NYSE:CPF) 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 CPF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CPF investors were disappointed as the stock returned -4.4% 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.