Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Crown Holdings, Inc. (NYSE:CCK).
Crown Holdings, Inc. (NYSE:CCK) has experienced an increase in support from the world’s most elite money managers recently. CCK was in 42 hedge funds’ portfolios at the end of September. There were 35 hedge funds in our database with CCK positions at the end of the previous quarter. Our calculations also showed that CCK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a peek at the latest hedge fund action surrounding Crown Holdings, Inc. (NYSE:CCK).
Hedge fund activity in Crown Holdings, Inc. (NYSE:CCK)
Heading into the fourth quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in CCK a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Lyrical Asset Management was the largest shareholder of Crown Holdings, Inc. (NYSE:CCK), with a stake worth $313.4 million reported as of the end of September. Trailing Lyrical Asset Management was Rivulet Capital, which amassed a stake valued at $131 million. Millennium Management, Adage Capital Management, and Viking Global 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 Rivulet Capital allocated the biggest weight to Crown Holdings, Inc. (NYSE:CCK), around 14.86% of its 13F portfolio. SAYA Management is also relatively very bullish on the stock, earmarking 11.08 percent of its 13F equity portfolio to CCK.
As industrywide interest jumped, some big names were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, initiated the most outsized position in Crown Holdings, Inc. (NYSE:CCK). Alyeska Investment Group had $67.4 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $26.5 million investment in the stock during the quarter. The following funds were also among the new CCK investors: Mark Kingdon’s Kingdon Capital, David E. Shaw’s D E Shaw, and Guy Shahar’s DSAM Partners.
Let’s also examine hedge fund activity in other stocks similar to Crown Holdings, Inc. (NYSE:CCK). We will take a look at Beyond Meat, Inc. (NASDAQ:BYND), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), Nice Systems Ltd (NASDAQ:NICE), and Melco Resorts & Entertainment Limited (NASDAQ:MLCO). This group of stocks’ market values are closest to CCK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BYND | 17 | 92936 | 1 |
| ALNY | 29 | 779948 | -6 |
| NICE | 16 | 375883 | -3 |
| MLCO | 24 | 533835 | 2 |
| Average | 21.5 | 445651 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $446 million. That figure was $1267 million in CCK’s case. Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is the most popular stock in this table. On the other hand Nice Systems Ltd (NASDAQ:NICE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Crown Holdings, Inc. (NYSE:CCK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on CCK as the stock returned 76.4% so far in 2019 (through 12/23) 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.
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.
