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 ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 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 Crawford & Company (NYSE:CRD).
Crawford & Company (NYSE:CRD) investors should be aware of an increase in enthusiasm from smart money recently. Our calculations also showed that CRD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the key hedge fund action surrounding Crawford & Company (NYSE:CRD).
What does smart money think about Crawford & Company (NYSE:CRD)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in CRD over the last 17 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Crawford & Company (NYSE:CRD), with a stake worth $8.4 million reported as of the end of September. Trailing Renaissance Technologies was Rutabaga Capital Management, which amassed a stake valued at $5.9 million. Intrepid Capital Management, Millennium Management, and Arrowstreet Capital 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 Rutabaga Capital Management allocated the biggest weight to Crawford & Company (NYSE:CRD), around 2.09% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, designating 1.74 percent of its 13F equity portfolio to CRD.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Crawford & Company (NYSE:CRD). Arrowstreet Capital had $1.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Bradley Louis Radoff’s Fondren Management, Ken Griffin’s Citadel Investment Group, and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s check out hedge fund activity in other stocks similar to Crawford & Company (NYSE:CRD). We will take a look at The Bancorp, Inc. (NASDAQ:TBBK), The First of Long Island Corporation (NASDAQ:FLIC), Tufin Software Technologies Ltd. (NYSE:TUFN), and Autolus Therapeutics plc (NASDAQ:AUTL). This group of stocks’ market valuations resemble CRD’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TBBK | 18 | 84515 | 1 |
| FLIC | 10 | 40054 | 1 |
| TUFN | 7 | 7950 | 1 |
| AUTL | 11 | 63408 | -2 |
| Average | 11.5 | 48982 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $37 million in CRD’s case. The Bancorp, Inc. (NASDAQ:TBBK) is the most popular stock in this table. On the other hand Tufin Software Technologies Ltd. (NYSE:TUFN) is the least popular one with only 7 bullish hedge fund positions. Crawford & Company (NYSE:CRD) 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. 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. Unfortunately CRD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CRD were disappointed as the stock returned 1.4% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.