Did Hedge Funds Make The Right Call On CF Industries Holdings, Inc. (CF) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards CF Industries Holdings, Inc. (NYSE:CF) at the end of the first quarter and determine whether the smart money was really smart about this stock.

CF Industries Holdings, Inc. (NYSE:CF) has experienced a decrease in support from the world’s most elite money managers recently. CF was in 34 hedge funds’ portfolios at the end of the first quarter of 2020. There were 41 hedge funds in our database with CF holdings at the end of the previous quarter. Our calculations also showed that CF isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the latest hedge fund action surrounding CF Industries Holdings, Inc. (NYSE:CF).

What does smart money think about CF Industries Holdings, Inc. (NYSE:CF)?

At the end of the first quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in CF a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Eminence Capital, managed by Ricky Sandler, holds the largest position in CF Industries Holdings, Inc. (NYSE:CF). Eminence Capital has a $97.7 million position in the stock, comprising 1.1% of its 13F portfolio. The second most bullish fund manager is Matthew Barrett of Glendon Capital Management, with a $96.4 million position; the fund has 31.5% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise Phill Gross and Robert Atchinson’s Adage Capital Management, D. E. Shaw’s D E Shaw and Kerr Neilson’s Platinum Asset Management. In terms of the portfolio weights assigned to each position Glendon Capital Management allocated the biggest weight to CF Industries Holdings, Inc. (NYSE:CF), around 31.54% of its 13F portfolio. Moon Capital is also relatively very bullish on the stock, earmarking 5.68 percent of its 13F equity portfolio to CF.

Due to the fact that CF Industries Holdings, Inc. (NYSE:CF) has witnessed falling interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedge funds that slashed their full holdings heading into Q4. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dumped the largest position of all the hedgies monitored by Insider Monkey, comprising an estimated $34.8 million in stock, and Kevin D. Eng’s Columbus Hill Capital Management was right behind this move, as the fund cut about $32 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 7 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to CF Industries Holdings, Inc. (NYSE:CF). We will take a look at Reliance Steel & Aluminum Co. (NYSE:RS), IPG Photonics Corporation (NASDAQ:IPGP), Natura &Co Holding S.A. (NYSE:NTCO), and Proofpoint Inc (NASDAQ:PFPT). This group of stocks’ market caps resemble CF’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $606 million in CF’s case. Proofpoint Inc (NASDAQ:PFPT) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks CF Industries Holdings, Inc. (NYSE:CF) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately CF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CF were disappointed as the stock returned 4.7% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.