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Were Hedge Funds Right About Canadian National Railway (CNI)?

Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 Canadian National Railway Company (NYSE:CNI).

Canadian National Railway Company (NYSE:CNI) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. 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 Zoetis Inc (NYSE:ZTS), Boston Scientific Corporation (NYSE:BSX), and Allergan plc (NYSE:AGN) to gather more data points. Our calculations also showed that CNI 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).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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. Now we’re going to take a look at the latest hedge fund action encompassing Canadian National Railway Company (NYSE:CNI).

What have hedge funds been doing with Canadian National Railway Company (NYSE:CNI)?

At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. On the other hand, there were a total of 24 hedge funds with a bullish position in CNI a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Bill & Melinda Gates Foundation Trust was the largest shareholder of Canadian National Railway Company (NYSE:CNI), with a stake worth $1549.1 million reported as of the end of September. Trailing Bill & Melinda Gates Foundation Trust was Arrowstreet Capital, which amassed a stake valued at $124.4 million. Renaissance Technologies, Millennium Management, and Echo Street 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 Bill & Melinda Gates Foundation Trust allocated the biggest weight to Canadian National Railway Company (NYSE:CNI), around 7.25% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, setting aside 4.05 percent of its 13F equity portfolio to CNI.

Seeing as Canadian National Railway Company (NYSE:CNI) has faced falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds who sold off their full holdings heading into Q4. Interestingly, Richard Chilton’s Chilton Investment Company dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $2.9 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also sold off its stock, about $1.1 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Canadian National Railway Company (NYSE:CNI) but similarly valued. These stocks are Zoetis Inc (NYSE:ZTS), Boston Scientific Corporation (NYSE:BSX), Allergan plc (NYSE:AGN), and VMware, Inc. (NYSE:VMW). This group of stocks’ market caps are closest to CNI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZTS 48 2230316 -5
BSX 54 3207627 2
AGN 86 9927657 2
VMW 33 777041 -4
Average 55.25 4035660 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.25 hedge funds with bullish positions and the average amount invested in these stocks was $4036 million. That figure was $2001 million in CNI’s case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks Canadian National Railway Company (NYSE:CNI) is even less popular than VMW. 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 managed to beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on CNI, though not to the same extent, as the stock returned -10.4% during the same time period and outperformed the market as well.
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.

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