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Were Hedge Funds Right About Chesapeake Utilities Corporation (CPK)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Chesapeake Utilities Corporation (NYSE:CPK)? The smart money sentiment can provide an answer to this question.

Is Chesapeake Utilities Corporation (NYSE:CPK) a buy here? Investors who are in the know are becoming less confident. The number of bullish hedge fund positions fell by 1 lately. Our calculations also showed that CPK 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). CPK was in 8 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 9 hedge funds in our database with CPK holdings at the end of the previous quarter.

If you’d ask most shareholders, hedge funds are perceived as slow, outdated investment tools of the past. While there are more than 8000 funds trading today, We hone in on the top tier of this group, around 850 funds. These investment experts have their hands on most of all hedge funds’ total capital, and by shadowing their finest equity investments, Insider Monkey has come up with many investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

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, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. 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. Keeping this in mind let’s take a gander at the fresh hedge fund action encompassing Chesapeake Utilities Corporation (NYSE:CPK).

How have hedgies been trading Chesapeake Utilities Corporation (NYSE:CPK)?

Heading into the first quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CPK over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Chesapeake Utilities Corporation (NYSE:CPK), which was worth $21.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $9.2 million worth of shares. Citadel Investment Group, Two Sigma Advisors, and AQR 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 Navellier & Associates allocated the biggest weight to Chesapeake Utilities Corporation (NYSE:CPK), around 0.04% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to CPK.

Judging by the fact that Chesapeake Utilities Corporation (NYSE:CPK) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Donald Sussman’s Paloma Partners said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $0.4 million in stock, and Ran Pang’s Quantamental Technologies was right behind this move, as the fund cut about $0 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Chesapeake Utilities Corporation (NYSE:CPK). We will take a look at KEMET Corporation (NYSE:KEM), Brinker International, Inc. (NYSE:EAT), Huron Consulting Group (NASDAQ:HURN), and BioTelemetry, Inc. (NASDAQ:BEAT). This group of stocks’ market caps are closest to CPK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KEM 21 191537 1
EAT 21 181122 -8
HURN 14 48321 3
BEAT 15 49876 -3
Average 17.75 117714 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $36 million in CPK’s case. KEMET Corporation (NYSE:KEM) is the most popular stock in this table. On the other hand Huron Consulting Group (NASDAQ:HURN) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Chesapeake Utilities Corporation (NYSE:CPK) is even less popular than HURN. Hedge funds clearly dropped the ball on CPK as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on CPK as the stock returned -10.3% during the same time period and outperformed the market by an even larger margin.
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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