We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Aurora Cannabis Inc. (NASDAQ:ACB).
Hedge fund interest in Aurora Cannabis Inc. (NASDAQ:ACB) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Luckin Coffee Inc. (NASDAQ:LK), Brunswick Corporation (NYSE:BC), and WPX Energy Inc (NYSE:WPX) to gather more data points. Our calculations also showed that ACB 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.
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 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 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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a glance at the fresh hedge fund action surrounding Aurora Cannabis Inc. (NASDAQ:ACB).
How are hedge funds trading Aurora Cannabis Inc. (NASDAQ:ACB)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in ACB a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Aurora Cannabis Inc. (NASDAQ:ACB) was held by Renaissance Technologies, which reported holding $10 million worth of stock at the end of September. It was followed by Sculptor Capital with a $4.4 million position. Other investors bullish on the company included Citadel Investment Group, GLG Partners, and Gotham Asset Management. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Aurora Cannabis Inc. (NASDAQ:ACB), around 0.07% of its 13F portfolio. Sculptor Capital is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to ACB.
Due to the fact that Aurora Cannabis Inc. (NASDAQ:ACB) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few money managers who sold off their full holdings heading into Q4. At the top of the heap, Nick Niell’s Arrowgrass Capital Partners dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $2.7 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Aurora Cannabis Inc. (NASDAQ:ACB). We will take a look at Luckin Coffee Inc. (NASDAQ:LK), Brunswick Corporation (NYSE:BC), WPX Energy Inc (NYSE:WPX), and Landstar System, Inc. (NASDAQ:LSTR). This group of stocks’ market valuations resemble ACB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LK | 23 | 300025 | -8 |
| BC | 28 | 564304 | -2 |
| WPX | 44 | 582500 | 4 |
| LSTR | 19 | 191180 | -3 |
| Average | 28.5 | 409502 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $410 million. That figure was $17 million in ACB’s case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand Landstar System, Inc. (NASDAQ:LSTR) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Aurora Cannabis Inc. (NASDAQ:ACB) is even less popular than LSTR. Hedge funds dodged a bullet by taking a bearish stance towards ACB. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ACB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ACB investors were disappointed as the stock returned -43.1% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.