Was The Smart Money Right About Criteo SA (CRTO)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we are going to take a closer look at the hedge fund sentiment surrounding Criteo SA (NASDAQ:CRTO).

Criteo SA (NASDAQ:CRTO) was in 10 hedge funds’ portfolios at the end of December. CRTO investors should pay attention to a decrease in hedge fund sentiment lately. There were 13 hedge funds in our database with CRTO holdings at the end of the previous quarter. Our calculations also showed that CRTO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 S&P 500 ETFs by 41 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 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.

Ahmet Okumus - Okumus Capital

Ahmet Okumus of Okumus Fund Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the fresh hedge fund action regarding Criteo SA (NASDAQ:CRTO).

Hedge fund activity in Criteo SA (NASDAQ:CRTO)

At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CRTO over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Charles de Vaulx’s International Value Advisers has the largest position in Criteo SA (NASDAQ:CRTO), worth close to $55.8 million, comprising 2.3% of its total 13F portfolio. Coming in second is Okumus Fund Management, led by Ahmet Okumus, holding a $21 million position; 5% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish encompass Ken Griffin’s Citadel Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Okumus Fund Management allocated the biggest weight to Criteo SA (NASDAQ:CRTO), around 5.01% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, setting aside 3.34 percent of its 13F equity portfolio to CRTO.

Seeing as Criteo SA (NASDAQ:CRTO) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there were a few funds that decided to sell off their positions entirely by the end of the third quarter. Interestingly, Bruce Emery’s Greenvale Capital dropped the biggest position of the 750 funds tracked by Insider Monkey, totaling close to $47.5 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $6.8 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Criteo SA (NASDAQ:CRTO). These stocks are Middlesex Water Company (NASDAQ:MSEX), TG Therapeutics Inc (NASDAQ:TGTX), M/I Homes Inc (NYSE:MHO), and Realogy Holdings Corp (NYSE:RLGY). This group of stocks’ market values resemble CRTO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MSEX 9 52214 -1
TGTX 22 320444 3
MHO 20 71843 1
RLGY 30 478410 5
Average 20.25 230728 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $231 million. That figure was $114 million in CRTO’s case. Realogy Holdings Corp (NYSE:RLGY) is the most popular stock in this table. On the other hand Middlesex Water Company (NASDAQ:MSEX) is the least popular one with only 9 bullish hedge fund positions. Criteo SA (NASDAQ:CRTO) 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately CRTO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CRTO investors were disappointed as the stock returned -45.1% during the same time period 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.