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Were Hedge Funds Right About Dumping Cannae Holdings, Inc. (CNNE)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Cannae Holdings, Inc. (NYSE:CNNE) based on that data and determine whether they were really smart about the stock.

Is Cannae Holdings, Inc. (NYSE:CNNE) ready to rally soon? Investors who are in the know were becoming less hopeful. The number of long hedge fund positions dropped by 11 lately. Our calculations also showed that CNNE 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). CNNE was in 20 hedge funds’ portfolios at the end of March. There were 31 hedge funds in our database with CNNE holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Jeffrey Talpins of Element Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a glance at the fresh hedge fund action regarding Cannae Holdings, Inc. (NYSE:CNNE).

What have hedge funds been doing with Cannae Holdings, Inc. (NYSE:CNNE)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -35% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in CNNE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CNNE A Good Stock To Buy?

The largest stake in Cannae Holdings, Inc. (NYSE:CNNE) was held by Nitorum Capital, which reported holding $104.6 million worth of stock at the end of September. It was followed by Lomas Capital Management with a $48.5 million position. Other investors bullish on the company included Millennium Management, Bayberry Capital Partners, and Islet Management. In terms of the portfolio weights assigned to each position Nitorum Capital allocated the biggest weight to Cannae Holdings, Inc. (NYSE:CNNE), around 8.1% of its 13F portfolio. Bayberry Capital Partners is also relatively very bullish on the stock, dishing out 7.08 percent of its 13F equity portfolio to CNNE.

Seeing as Cannae Holdings, Inc. (NYSE:CNNE) has faced declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of money managers who were dropping their full holdings heading into Q4. At the top of the heap, Jeffrey Talpins’s Element Capital Management dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $11.2 million in stock. Brandon Haley’s fund, Holocene Advisors, also cut its stock, about $9.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 11 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Cannae Holdings, Inc. (NYSE:CNNE). These stocks are Devon Energy Corporation (NYSE:DVN), Nexstar Media Group, Inc. (NASDAQ:NXST), Sinopec Shanghai Petrochemical Co. (NYSE:SHI), and Medpace Holdings, Inc. (NASDAQ:MEDP). All of these stocks’ market caps are similar to CNNE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DVN 42 222790 -12
NXST 41 662726 1
SHI 3 11620 0
MEDP 17 183270 0
Average 25.75 270102 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $270 million. That figure was $241 million in CNNE’s case. Devon Energy Corporation (NYSE:DVN) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Co. (NYSE:SHI) is the least popular one with only 3 bullish hedge fund positions. Cannae Holdings, Inc. (NYSE:CNNE) 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately CNNE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CNNE investors were disappointed as the stock returned 12.2% since Q1 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.