Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
CA, Inc. (NASDAQ:CA) was in 36 hedge funds’ portfolios at the end of September. CA investors should be aware of an increase in hedge fund sentiment in recent months. There were 21 hedge funds in our database with CA holdings at the end of the previous quarter. Our calculations also showed that CA isn’t among the 30 most popular stocks among hedge funds.
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 has shown that hedge funds’ large-cap stock picks indeed failed to the beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s analyze the recent hedge fund action encompassing CA, Inc. (NASDAQ:CA).
What does the smart money think about CA, Inc. (NASDAQ:CA)?
At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 71% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CA over the last 13 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in CA, Inc. (NASDAQ:CA) was held by Magnetar Capital, which reported holding $242.3 million worth of stock at the end of September. It was followed by Paulson & Co with a $240.6 million position. Other investors bullish on the company included Alpine Associates, AQR Capital Management, and Alyeska Investment Group.
As aggregate interest increased, key money managers were leading the bulls’ herd. Magnetar Capital, managed by Alec Litowitz and Ross Laser, created the most valuable position in CA, Inc. (NASDAQ:CA). Magnetar Capital had $242.3 million invested in the company at the end of the quarter. John Paulson’s Paulson & Co also initiated a $240.6 million position during the quarter. The other funds with new positions in the stock are Robert Emil Zoellner’s Alpine Associates, Anand Parekh’s Alyeska Investment Group, and Jim Simons’s Renaissance Technologies.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as CA, Inc. (NASDAQ:CA) but similarly valued. We will take a look at SBA Communications Corporation (NASDAQ:SBAC), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), Citizens Financial Group Inc (NYSE:CFG), and AMETEK, Inc. (NYSE:AME). This group of stocks’ market caps are similar to CA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SBAC | 32 | 1853307 | 4 |
| WLTW | 33 | 2052314 | 7 |
| CFG | 42 | 1556600 | -5 |
| AME | 33 | 1185675 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1.66 billion. That figure was $1.56 billion in CA’s case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand SBA Communications Corporation (NASDAQ:SBAC) is the least popular one with only 32 bullish hedge fund positions. CA, Inc. (NASDAQ:CA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CFG might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
