We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Canopy Growth Corporation (NYSE:CGC).
Is Canopy Growth Corporation (NYSE:CGC) the right pick for your portfolio? Prominent investors are getting more optimistic. The number of long hedge fund bets advanced by 5 lately. Our calculations also showed that CGC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
William Harnisch of Peconic Partners LLC
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the fresh hedge fund action surrounding Canopy Growth Corporation (NYSE:CGC).
How are hedge funds trading Canopy Growth Corporation (NYSE:CGC)?
At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 56% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in CGC 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.
Among these funds, Alkeon Capital Management held the most valuable stake in Canopy Growth Corporation (NYSE:CGC), which was worth $42.2 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $30.9 million worth of shares. Renaissance Technologies, OZ Management, and Peconic Partners LLC were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Peconic Partners LLC allocated the biggest weight to Canopy Growth Corporation (NYSE:CGC), around 0.98% of its 13F portfolio. Prentice Capital Management is also relatively very bullish on the stock, designating 0.74 percent of its 13F equity portfolio to CGC.
As one would reasonably expect, some big names have been driving this bullishness. Peconic Partners LLC, managed by William Harnisch, created the most valuable position in Canopy Growth Corporation (NYSE:CGC). Peconic Partners LLC had $4.8 million invested in the company at the end of the quarter. Michael Zimmerman’s Prentice Capital Management also made a $1.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Bernard Selz’s Selz Capital, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Canopy Growth Corporation (NYSE:CGC) but similarly valued. We will take a look at Woodward Inc (NASDAQ:WWD), Guardant Health, Inc. (NASDAQ:GH), Robert Half International Inc. (NYSE:RHI), and Gentex Corporation (NASDAQ:GNTX). This group of stocks’ market valuations match CGC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WWD | 22 | 298847 | -3 |
| GH | 29 | 639870 | 4 |
| RHI | 23 | 550331 | -1 |
| GNTX | 32 | 616430 | -1 |
| Average | 26.5 | 526370 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $526 million. That figure was $42 million in CGC’s case. Gentex Corporation (NASDAQ:GNTX) is the most popular stock in this table. On the other hand Woodward Inc (NASDAQ:WWD) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Canopy Growth Corporation (NYSE:CGC) is even less popular than WWD. Hedge funds dodged a bullet by taking a bearish stance towards CGC. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately CGC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CGC investors were disappointed as the stock returned -51.3% during the same time period 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 most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
