Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth depends on it. Regardless of the various methods used by elite investors like David Tepper and Dan Loeb, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
CF Industries Holdings, Inc. (NYSE:CF) was in 33 hedge funds’ portfolios at the end of the third quarter of 2018. CF has seen an increase in enthusiasm from smart money lately. There were 30 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.
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’ 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.
We’re going to check out the fresh hedge fund action encompassing CF Industries Holdings, Inc. (NYSE:CF).
What have hedge funds been doing with CF Industries Holdings, Inc. (NYSE:CF)?
At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in CF heading into this year. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Eminence Capital was the largest shareholder of CF Industries Holdings, Inc. (NYSE:CF), with a stake worth $214.5 million reported as of the end of September. Trailing Eminence Capital was Platinum Asset Management, which amassed a stake valued at $145.5 million. Millennium Management, Slate Path Capital, and Glendon Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers were leading the bulls’ herd. Pelham Capital, managed by Ross Turner, established the most valuable call position in CF Industries Holdings, Inc. (NYSE:CF). Pelham Capital had $27.2 million invested in the company at the end of the quarter. George Soros’s Soros Fund Management also made a $16.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Vince Maddi and Shawn Brennan’s SIR Capital Management, and William Harnisch’s Peconic Partners LLC.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CF Industries Holdings, Inc. (NYSE:CF) but similarly valued. We will take a look at Marvell Technology Group Ltd. (NASDAQ:MRVL), Targa Resources Corp (NYSE:TRGP), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Telecom Italia S.p.A. (NYSE:TI). This group of stocks’ market valuations resemble CF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MRVL | 31 | 1899897 | -8 |
| TRGP | 21 | 1126979 | -1 |
| CMG | 33 | 2025165 | -6 |
| TI | 3 | 1661 | -1 |
| Average | 22 | 1263426 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $1.26 billion. That figure was $1.16 billion in CF’s case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand Telecom Italia S.p.A. (NYSE:TI) is the least popular one with only 3 bullish hedge fund positions. CF Industries Holdings, Inc. (NYSE:CF) 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 CMG might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
