Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Cloudera, Inc. (NYSE:CLDR).
Cloudera, Inc. (NYSE:CLDR) has experienced a decrease in hedge fund sentiment of late. Our calculations also showed that CLDR isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to 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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the fresh hedge fund action encompassing Cloudera, Inc. (NYSE:CLDR).
What have hedge funds been doing with Cloudera, Inc. (NYSE:CLDR)?
At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the first quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in CLDR 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.
The largest stake in Cloudera, Inc. (NYSE:CLDR) was held by RGM Capital, which reported holding $32.4 million worth of stock at the end of March. It was followed by Raging Capital Management with a $26.5 million position. Other investors bullish on the company included Indaba Capital Management, Hawk Ridge Management, and Millennium Management.
Since Cloudera, Inc. (NYSE:CLDR) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedgies that decided to sell off their full holdings last quarter. Interestingly, Renaissance Technologies cut the largest stake of the 750 funds watched by Insider Monkey, valued at close to $41.3 million in stock, and Mariko Gordon’s Daruma Asset Management was right behind this move, as the fund said goodbye to about $27.4 million worth. These moves are important to note, as aggregate hedge fund interest fell by 7 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cloudera, Inc. (NYSE:CLDR) but similarly valued. We will take a look at TriMas Corp (NASDAQ:TRS), Brookdale Senior Living, Inc. (NYSE:BKD), PPDAI Group Inc. (NYSE:PPDF), and American Woodmark Corporation (NASDAQ:AMWD). All of these stocks’ market caps match CLDR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRS | 15 | 112396 | -3 |
| BKD | 22 | 473004 | -5 |
| PPDF | 7 | 9857 | -5 |
| AMWD | 9 | 36128 | -3 |
| Average | 13.25 | 157846 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $129 million in CLDR’s case. Brookdale Senior Living, Inc. (NYSE:BKD) is the most popular stock in this table. On the other hand PPDAI Group Inc. (NYSE:PPDF) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Cloudera, Inc. (NYSE:CLDR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CLDR as the stock returned 68.4% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
