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Were Hedge Funds Right About Flocking Into Colfax Corporation (CFX) ?

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Colfax Corporation (NYSE:CFX).

Colfax Corporation (NYSE:CFX) has seen an increase in support from the world’s most elite money managers lately. CFX was in 27 hedge funds’ portfolios at the end of December. There were 20 hedge funds in our database with CFX holdings at the end of the previous quarter. Our calculations also showed that CFX isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

Charles Davidson - Wexford Capital

Let’s go over the new hedge fund action regarding Colfax Corporation (NYSE:CFX).

What have hedge funds been doing with Colfax Corporation (NYSE:CFX)?

At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CFX over the last 14 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.

CFX_apr2019

The largest stake in Colfax Corporation (NYSE:CFX) was held by Diamond Hill Capital, which reported holding $56.1 million worth of stock at the end of September. It was followed by Select Equity Group with a $39.5 million position. Other investors bullish on the company included Wallace R. Weitz & Co., Bares Capital Management, and Wexford Capital.

As one would reasonably expect, key hedge funds have been driving this bullishness. Select Equity Group, managed by Robert Joseph Caruso, assembled the most valuable position in Colfax Corporation (NYSE:CFX). Select Equity Group had $39.5 million invested in the company at the end of the quarter. Charles Davidson and Joseph Jacobs’s Wexford Capital also made a $25.9 million investment in the stock during the quarter. The other funds with brand new CFX positions are Phill Gross and Robert Atchinson’s Adage Capital Management, Amit Wadhwaney’s Moerus Capital Management, and Jim Simons’s Renaissance Technologies.

Let’s also examine hedge fund activity in other stocks similar to Colfax Corporation (NYSE:CFX). These stocks are Omnicell, Inc. (NASDAQ:OMCL), Box, Inc. (NYSE:BOX), Houlihan Lokey Inc (NYSE:HLI), and Nextera Energy Partners LP (NYSE:NEP). This group of stocks’ market caps are similar to CFX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OMCL 13 64252 8
BOX 24 386086 -2
HLI 18 138227 4
NEP 12 35346 0
Average 16.75 155978 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $334 million in CFX’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Nextera Energy Partners LP (NYSE:NEP) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Colfax Corporation (NYSE:CFX) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on CFX as the stock returned 44.6% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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