Carlyle Group LP (CG): Are Hedge Funds Right About This Stock?

Between June 25 and October 30th the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 14 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor, and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Carlyle Group LP (NASDAQ:CG) and see how the stock is affected by the recent hedge fund activity.

Hedge fund interest in Carlyle Group LP (NASDAQ:CG) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as IAC/InterActiveCorp (NASDAQ:IACI), EnCana Corporation (USA) (NYSE:ECA), and Axis Capital Holdings Limited (NYSE:AXS) to gather more data points.

In the eyes of most investors, hedge funds are assumed to be underperforming, old investment tools of years past. While there are over 8000 funds with their doors open at present, We hone in on the upper echelon of this group, approximately 700 funds. These money managers direct bulk of the hedge fund industry’s total capital, and by keeping an eye on their best picks, Insider Monkey has figured out a number of investment strategies that have historically surpassed the market. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, let’s take a look at the new action encompassing Carlyle Group LP (NASDAQ:CG).

How have hedgies been trading Carlyle Group LP (NASDAQ:CG)?

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the previous quarter. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Marshall Wace LLP, managed by Paul Marshall and Ian Wace, holds the largest position in Carlyle Group LP (NASDAQ:CG). Marshall Wace LLP has a $20.6 million position in the stock, comprising 0.3% of its 13F portfolio. Sitting at the No. 2 spot is Jim Simons’ Renaissance Technologies, with a $14.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish include Russell Hawkins’s Hawkins Capital, Tom Gayner’s Markel Gayner Asset Management and Ken Griffin’s Citadel Investment Group.

It’s also worth mentioning that Eric Halet and Davide Serra’s Algebris Investments dumped the largest investment of the 700 funds tracked by Insider Monkey, totaling close to $10.3 million in call options.. Israel Englander’s fund, Millennium Management, also dumped its call options., about $6.3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Carlyle Group LP (NASDAQ:CG). These stocks are IAC/InterActiveCorp (NASDAQ:IACI), EnCana Corporation (USA) (NYSE:ECA), Axis Capital Holdings Limited (NYSE:AXS), and Pilgrim’s Pride Corporation (NASDAQ:PPC). This group of stocks’ market caps match CG’s market cap.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $742 million. That figure was just $58 million in CG’s case. IAC/InterActiveCorp (NASDAQ:IACI) is the most popular stock in this table, while Axis Capital Holdings Limited (NYSE:AXS) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Carlyle Group LP (NASDAQ:CG) is even less popular than AXS. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.