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 Continental Building Products Inc (NYSE:CBPX).
Continental Building Products Inc (NYSE:CBPX) investors should pay attention to a decrease in support from the world’s most elite money managers lately. CBPX was in 17 hedge funds’ portfolios at the end of the second quarter of 2019. There were 20 hedge funds in our database with CBPX holdings at the end of the previous quarter. Our calculations also showed that CBPX 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
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 review the new hedge fund action regarding Continental Building Products Inc (NYSE:CBPX).
How are hedge funds trading Continental Building Products Inc (NYSE:CBPX)?
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in CBPX a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, D. E. Shaw’s D E Shaw has the most valuable position in Continental Building Products Inc (NYSE:CBPX), worth close to $28.5 million, comprising less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $7.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass Renaissance Technologies, Joel Greenblatt’s Gotham Asset Management and John Overdeck and David Siegel’s Two Sigma Advisors.
Since Continental Building Products Inc (NYSE:CBPX) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of fund managers that slashed their entire stakes heading into Q3. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, worth an estimated $1.3 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund cut about $0.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to Continental Building Products Inc (NYSE:CBPX). These stocks are Social Capital Hedosophia Holdings Corp. (NYSE:IPOA), Washington Trust Bancorp, Inc. (NASDAQ:WASH), Unitil Corporation (NYSE:UTL), and JinkoSolar Holding Co., Ltd. (NYSE:JKS). This group of stocks’ market values resemble CBPX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IPOA | 23 | 315142 | 1 |
| WASH | 7 | 28822 | 3 |
| UTL | 9 | 85550 | -1 |
| JKS | 8 | 18193 | 2 |
| Average | 11.75 | 111927 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $68 million in CBPX’s case. Social Capital Hedosophia Holdings Corp. (NYSE:IPOA) is the most popular stock in this table. On the other hand Washington Trust Bancorp, Inc. (NASDAQ:WASH) is the least popular one with only 7 bullish hedge fund positions. Continental Building Products Inc (NYSE:CBPX) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on CBPX, though not to the same extent, as the stock returned 2.7% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
