Hedge Funds Are Selling Canadian Solar Inc. (CSIQ)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Canadian Solar Inc. (NASDAQ:CSIQ) and determine whether hedge funds had an edge regarding this stock.

Canadian Solar Inc. (NASDAQ:CSIQ) has seen a decrease in support from the world’s most elite money managers of late. CSIQ was in 11 hedge funds’ portfolios at the end of March. There were 14 hedge funds in our database with CSIQ positions at the end of the previous quarter. Our calculations also showed that CSIQ 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.

Ken Griffin of Citadel Investment Group

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 let’s take a look at the latest hedge fund action encompassing Canadian Solar Inc. (NASDAQ:CSIQ).

What does smart money think about Canadian Solar Inc. (NASDAQ:CSIQ)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CSIQ over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Lion Point was the largest shareholder of Canadian Solar Inc. (NASDAQ:CSIQ), with a stake worth $68.2 million reported as of the end of September. Trailing Lion Point was Luminus Management, which amassed a stake valued at $9.8 million. Citadel Investment Group, D E Shaw, and PDT Partners 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 Lion Point allocated the biggest weight to Canadian Solar Inc. (NASDAQ:CSIQ), around 17.99% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, designating 1.01 percent of its 13F equity portfolio to CSIQ.

Due to the fact that Canadian Solar Inc. (NASDAQ:CSIQ) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies that elected to cut their entire stakes last quarter. Interestingly, Joseph Samuels’s Islet Management dropped the largest investment of the 750 funds followed by Insider Monkey, totaling about $9.4 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $2.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Canadian Solar Inc. (NASDAQ:CSIQ) but similarly valued. We will take a look at Seacoast Banking Corporation of Florida (NASDAQ:SBCF), Glu Mobile Inc. (NASDAQ:GLUU), Cardtronics plc (NASDAQ:CATM), and Murphy Oil Corporation (NYSE:MUR). This group of stocks’ market valuations are closest to CSIQ’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $87 million in CSIQ’s case. Murphy Oil Corporation (NYSE:MUR) is the most popular stock in this table. On the other hand Seacoast Banking Corporation of Florida (NASDAQ:SBCF) is the least popular one with only 8 bullish hedge fund positions. Canadian Solar Inc. (NASDAQ:CSIQ) is not the least popular stock in this group but hedge fund interest is still below average. 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 but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on CSIQ, though not to the same extent, as the stock returned 21.1% during the second quarter and outperformed the market.

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