Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 4 percentage points through September 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Cott Corporation (NYSE:COT) investors should pay attention to a decrease in hedge fund interest lately. Our calculations also showed that COT 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. We’re going to take a glance at the recent hedge fund action surrounding Cott Corporation (NYSE:COT).
What have hedge funds been doing with Cott Corporation (NYSE:COT)?
Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in COT 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Seth Rosen’s Nitorum Capital has the number one position in Cott Corporation (NYSE:COT), worth close to $139.1 million, corresponding to 7.9% of its total 13F portfolio. The second largest stake is held by P2 Capital Partners, led by Claus Moller, holding a $73.7 million position; 5.6% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass Gregg Moskowitz’s Interval Partners, Renaissance Technologies and Noam Gottesman’s GLG Partners.
Because Cott Corporation (NYSE:COT) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedgies that slashed their full holdings by the end of the second quarter. At the top of the heap, Charles Davidson and Joseph Jacobs’s Wexford Capital cut the largest investment of all the hedgies watched by Insider Monkey, worth about $5.8 million in stock. Ward Davis and Brian Agnew’s fund, Caerus Global Investors, also sold off its stock, about $3 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds by the end of the second quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cott Corporation (NYSE:COT) but similarly valued. We will take a look at Jagged Peak Energy Inc. (NYSE:JAG), Progress Software Corporation (NASDAQ:PRGS), ServisFirst Bancshares, Inc. (NASDAQ:SFBS), and TransAlta Corporation (NYSE:TAC). This group of stocks’ market caps are similar to COT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JAG | 13 | 146861 | 1 |
| PRGS | 24 | 268304 | 0 |
| SFBS | 9 | 12767 | -1 |
| TAC | 9 | 29727 | -2 |
| Average | 13.75 | 114415 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $415 million in COT’s case. Progress Software Corporation (NASDAQ:PRGS) is the most popular stock in this table. On the other hand ServisFirst Bancshares, Inc. (NASDAQ:SFBS) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Cott Corporation (NYSE:COT) is more popular among hedge funds. 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 COT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on COT were disappointed as the stock returned -6.1% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
