Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CVR Partners LP (NYSE:UAN).
CVR Partners LP (NYSE:UAN) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare UAN to other stocks including Replimune Group, Inc. (NASDAQ:REPL), Ares Commercial Real Estate Corporation (NYSE:ACRE), and Domo Inc. (NASDAQ:DOMO) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
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 review the recent hedge fund action surrounding CVR Partners LP (NYSE:UAN).
How have hedgies been trading CVR Partners LP (NYSE:UAN)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 2 hedge funds held shares or bullish call options in UAN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Raging Capital Management, managed by William C. Martin, holds the biggest position in CVR Partners LP (NYSE:UAN). Raging Capital Management has a $34.8 million position in the stock, comprising 5.6% of its 13F portfolio. Coming in second is Matthew Barrett of Glendon Capital Management, with a $9.2 million position; 2.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish include Ken Griffin’s Citadel Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and . In terms of the portfolio weights assigned to each position Raging Capital Management allocated the biggest weight to CVR Partners LP (NYSE:UAN), around 5.62% of its 13F portfolio. Glendon Capital Management is also relatively very bullish on the stock, designating 2.11 percent of its 13F equity portfolio to UAN.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Arrowstreet Capital).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CVR Partners LP (NYSE:UAN) but similarly valued. These stocks are Replimune Group, Inc. (NASDAQ:REPL), Ares Commercial Real Estate Corporation (NYSE:ACRE), Domo Inc. (NASDAQ:DOMO), and Diamond S Shipping Inc. (NYSE:DSSI). This group of stocks’ market values match UAN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REPL | 5 | 68148 | -1 |
| ACRE | 10 | 20541 | -3 |
| DOMO | 14 | 94401 | 0 |
| DSSI | 15 | 138795 | 4 |
| Average | 11 | 80471 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $44 million in UAN’s case. Diamond S Shipping Inc. (NYSE:DSSI) is the most popular stock in this table. On the other hand Replimune Group, Inc. (NASDAQ:REPL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks CVR Partners LP (NYSE:UAN) is even less popular than REPL. Hedge funds dodged a bullet by taking a bearish stance towards UAN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately UAN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); UAN investors were disappointed as the stock returned -25% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
