The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Carpenter Technology Corporation (NYSE:CRS) and find out how it is affected by hedge funds’ moves.
Carpenter Technology Corporation (NYSE:CRS) shareholders have witnessed a decrease in hedge fund interest in recent months. CRS was in 12 hedge funds’ portfolios at the end of June. There were 13 hedge funds in our database with CRS holdings at the end of the previous quarter. Our calculations also showed that CRS isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 40 percentage points since May 2014 through May 30, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the latest hedge fund action encompassing Carpenter Technology Corporation (NYSE:CRS).
What does smart money think about Carpenter Technology Corporation (NYSE:CRS)?
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CRS over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Carpenter Technology Corporation (NYSE:CRS) was held by Fisher Asset Management, which reported holding $18 million worth of stock at the end of March. It was followed by Royce & Associates with a $16.3 million position. Other investors bullish on the company included Huber Capital Management, AQR Capital Management, and Citadel Investment Group.
Due to the fact that Carpenter Technology Corporation (NYSE:CRS) has faced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds who sold off their entire stakes last quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw said goodbye to the biggest position of the 750 funds watched by Insider Monkey, valued at about $1.6 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund sold off about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Carpenter Technology Corporation (NYSE:CRS). We will take a look at ExlService Holdings, Inc. (NASDAQ:EXLS), Enphase Energy Inc (NASDAQ:ENPH), Healthcare Services Group, Inc. (NASDAQ:HCSG), and WESCO International, Inc. (NYSE:WCC). This group of stocks’ market caps match CRS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EXLS | 11 | 44825 | 1 |
| ENPH | 20 | 299148 | 1 |
| HCSG | 20 | 101308 | -1 |
| WCC | 18 | 473813 | -8 |
| Average | 17.25 | 229774 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $230 million. That figure was $62 million in CRS’s case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand ExlService Holdings, Inc. (NASDAQ:EXLS) is the least popular one with only 11 bullish hedge fund positions. Carpenter Technology Corporation (NYSE:CRS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CRS as the stock returned 8.1% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
