The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Charles River Laboratories International Inc. (NYSE:CRL), and what that likely means for the prospects of the company and its stock.
Charles River Laboratories International Inc. (NYSE:CRL) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of September. 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 Arrow Electronics, Inc. (NYSE:ARW), Transocean Ltd (NYSE:RIG), and Douglas Emmett, Inc. (NYSE:DEI) to gather more data points.
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 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to take a peek at the key hedge fund action encompassing Charles River Laboratories International Inc. (NYSE:CRL).
How have hedgies been trading Charles River Laboratories International Inc. (NYSE:CRL)?
Heading into the fourth quarter of 2018, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, no change from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in CRL heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Charles River Laboratories International Inc. (NYSE:CRL), with a stake worth $232.1 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $182.4 million. Ariel Investments, Fisher Asset Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Charles River Laboratories International Inc. (NYSE:CRL) has experienced falling interest from the smart money, logic holds that there were a few money managers who were dropping their entire stakes last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest stake of all the hedgies tracked by Insider Monkey, totaling close to $11.2 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund dropped about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Charles River Laboratories International Inc. (NYSE:CRL). We will take a look at Arrow Electronics, Inc. (NYSE:ARW), Transocean Ltd (NYSE:RIG), Douglas Emmett, Inc. (NYSE:DEI), and National Instruments Corporation (NASDAQ:NATI). This group of stocks’ market values are similar to CRL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARW | 23 | 509427 | 6 |
| RIG | 42 | 861336 | 9 |
| DEI | 14 | 345417 | 3 |
| NATI | 24 | 500731 | 4 |
| Average | 25.75 | 554228 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $554 million. That figure was $737 million in CRL’s case. Transocean Ltd (NYSE:RIG) is the most popular stock in this table. On the other hand Douglas Emmett, Inc. (NYSE:DEI) is the least popular one with only 14 bullish hedge fund positions. Charles River Laboratories International Inc. (NYSE:CRL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RIG might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
