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Is Crawford & Company (CRD) Going to Burn These Hedge Funds?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Crawford & Company (NYSE:CRD) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Hedge fund interest in Crawford & Company (NYSE:CRD) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as WisdomTree Investments, Inc. (NASDAQ:WETF), Kosmos Energy Ltd (NYSE:KOS), and Scholar Rock Holding Corporation (NASDAQ:SRRK) to gather more data points. Our calculations also showed that CRD isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

New York Stock Exchange

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the fresh hedge fund action regarding Crawford & Company (NYSE:CRD).

What have hedge funds been doing with Crawford & Company (NYSE:CRD)?

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CRD over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Paradice Investment Management held the most valuable stake in Crawford & Company (NYSE:CRD), which was worth $21.4 million at the end of the third quarter. On the second spot was Paradice Investment Management which amassed $8.7 million worth of shares. Renaissance Technologies, Renaissance Technologies, and Rutabaga 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 Paradice Investment Management allocated the biggest weight to Crawford & Company (NYSE:CRD), around 2.38% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, designating 1.8 percent of its 13F equity portfolio to CRD.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Fondren Management).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Crawford & Company (NYSE:CRD) but similarly valued. These stocks are WisdomTree Investments, Inc. (NASDAQ:WETF), Kosmos Energy Ltd (NYSE:KOS), Scholar Rock Holding Corporation (NASDAQ:SRRK), and Replimune Group, Inc. (NASDAQ:REPL). All of these stocks’ market caps are closest to CRD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WETF 20 38214 3
KOS 21 28495 -9
SRRK 5 40575 -2
REPL 8 58138 -1
Average 13.5 41356 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $49 million in CRD’s case. Kosmos Energy Ltd (NYSE:KOS) is the most popular stock in this table. On the other hand Scholar Rock Holding Corporation (NASDAQ:SRRK) is the least popular one with only 5 bullish hedge fund positions. Crawford & Company (NYSE:CRD) 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately CRD wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CRD investors were disappointed as the stock returned 10.1% during the second 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 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.