Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Cerence Inc. (NASDAQ:CRNC) to find out whether there were any major changes in hedge funds’ views.
Is CRNC a good stock to buy now? Prominent investors were becoming less confident. The number of bullish hedge fund positions were trimmed by 2 lately. Cerence Inc. (NASDAQ:CRNC) was in 12 hedge funds’ portfolios at the end of September. The all time high for this statistics is 22. Our calculations also showed that CRNC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 14 hedge funds in our database with CRNC holdings at the end of June.
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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s check out the recent hedge fund action regarding Cerence Inc. (NASDAQ:CRNC).
Do Hedge Funds Think CRNC Is A Good Stock To Buy Now?
At third quarter’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in CRNC a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Isomer Partners, managed by Mendel Hui, holds the biggest position in Cerence Inc. (NASDAQ:CRNC). Isomer Partners has a $62.1 million position in the stock, comprising 15% of its 13F portfolio. On Isomer Partners’s heels is Honeycomb Asset Management, managed by David Fiszel, which holds a $27.2 million position; the fund has 2.1% of its 13F portfolio invested in the stock. Other peers that hold long positions comprise Mitch Kuflik and Rob Sobel’s Brahman Capital, Cliff Asness’s AQR Capital Management and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Cerence Inc. (NASDAQ:CRNC), around 14.96% of its 13F portfolio. Honeycomb Asset Management is also relatively very bullish on the stock, dishing out 2.06 percent of its 13F equity portfolio to CRNC.
Due to the fact that Cerence Inc. (NASDAQ:CRNC) has experienced bearish sentiment from the smart money, it’s safe to say that there was a specific group of money managers that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Robert Bishop’s Impala Asset Management dropped the biggest position of the 750 funds followed by Insider Monkey, valued at an estimated $7 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cerence Inc. (NASDAQ:CRNC) but similarly valued. These stocks are Assured Guaranty Ltd. (NYSE:AGO), AtriCure Inc. (NASDAQ:ATRC), The Goodyear Tire & Rubber Company (NASDAQ:GT), Rush Enterprises, Inc. (NASDAQ:RUSHB), Easterly Government Properties Inc (NYSE:DEA), Hilton Grand Vacations Inc. (NYSE:HGV), and B&G Foods, Inc. (NYSE:BGS). This group of stocks’ market valuations are closest to CRNC’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 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $135 million in CRNC’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 2 bullish hedge fund positions. Cerence Inc. (NASDAQ:CRNC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CRNC is 36. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on CRNC as the stock returned 79.7% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.