Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of CRH PLC (NYSE:CRH) and see how the stock is affected by the recent hedge fund activity.
Is CRH PLC (NYSE:CRH) a buy here? Investors who are in the know are becoming more confident. The number of long hedge fund bets moved up by 2 in recent months. Our calculations also showed that CRH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CRH was in 9 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with CRH positions at the end of the previous quarter.
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s take a look at the fresh hedge fund action surrounding CRH PLC (NYSE:CRH).
What have hedge funds been doing with CRH PLC (NYSE:CRH)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in CRH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of CRH PLC (NYSE:CRH), with a stake worth $69.7 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $27 million. GMT Capital, Millennium Management, and Balyasny Asset Management 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 GMT Capital allocated the biggest weight to CRH PLC (NYSE:CRH), around 0.58% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to CRH.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in CRH PLC (NYSE:CRH). Arrowstreet Capital had $27 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $6.7 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as CRH PLC (NYSE:CRH) but similarly valued. We will take a look at SBA Communications Corporation (NASDAQ:SBAC), Ventas, Inc. (NYSE:VTR), Digital Realty Trust, Inc. (NYSE:DLR), and Edison International (NYSE:EIX). This group of stocks’ market values match CRH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SBAC | 37 | 1537833 | 6 |
| VTR | 14 | 352435 | -4 |
| DLR | 17 | 135024 | -1 |
| EIX | 27 | 1708824 | -6 |
| Average | 23.75 | 933529 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $934 million. That figure was $130 million in CRH’s case. SBA Communications Corporation (NASDAQ:SBAC) is the most popular stock in this table. On the other hand Ventas, Inc. (NYSE:VTR) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks CRH PLC (NYSE:CRH) is even less popular than VTR. Hedge funds clearly dropped the ball on CRH as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CRH as the stock returned 11.5% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
