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Were Hedge Funds Right About Piling Into Charles River Laboratories International (CRL)?

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Charles River Laboratories International Inc. (NYSE:CRL).

Charles River Laboratories International Inc. (NYSE:CRL) has experienced an increase in hedge fund sentiment of late. Our calculations also showed that CRL isn’t among the 30 most popular stocks among hedge funds.

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 flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Rogers Ariel Investments

We’re going to take a peek at the key hedge fund action regarding Charles River Laboratories International Inc. (NYSE:CRL).

How have hedgies been trading Charles River Laboratories International Inc. (NYSE:CRL)?

Heading into the first quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in CRL a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

CRL_apr2019

Among these funds, Renaissance Technologies held the most valuable stake in Charles River Laboratories International Inc. (NYSE:CRL), which was worth $212.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $199.8 million worth of shares. Moreover, Ariel Investments, Fisher Asset Management, and Point72 Asset Management were also bullish on Charles River Laboratories International Inc. (NYSE:CRL), allocating a large percentage of their portfolios to this stock.

Consequently, some big names were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, initiated the most outsized position in Charles River Laboratories International Inc. (NYSE:CRL). Point72 Asset Management had $34.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $6.9 million position during the quarter. The following funds were also among the new CRL investors: Israel Englander’s Millennium Management, Joel Greenblatt’s Gotham Asset Management, and Michael Kharitonov and Jon David McAuliffe’s Voleon Capital.

Let’s go over hedge fund activity in other stocks similar to Charles River Laboratories International Inc. (NYSE:CRL). We will take a look at Hubbell Incorporated (NYSE:HUBB), athenahealth, Inc (NASDAQ:ATHN), Starwood Property Trust, Inc. (NYSE:STWD), and bluebird bio Inc (NASDAQ:BLUE). This group of stocks’ market caps are closest to CRL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HUBB 24 449250 -3
ATHN 26 738702 -1
STWD 17 131281 -4
BLUE 16 115978 -18
Average 20.75 358803 -6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $359 million. That figure was $699 million in CRL’s case. athenahealth, Inc (NASDAQ:ATHN) is the most popular stock in this table. On the other hand bluebird bio Inc (NASDAQ:BLUE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Charles River Laboratories International Inc. (NYSE:CRL) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on CRL as the stock returned 27.9% and outperformed the market as well.

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

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