Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) shareholders have witnessed an increase in enthusiasm from smart money recently. Our calculations also showed that CRZO isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a look at the fresh hedge fund action regarding Carrizo Oil & Gas, Inc. (NASDAQ:CRZO).
How have hedgies been trading Carrizo Oil & Gas, Inc. (NASDAQ:CRZO)?
Heading into the second quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in CRZO a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Lion Point held the most valuable stake in Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), which was worth $54.2 million at the end of the first quarter. On the second spot was Deep Basin Capital which amassed $25.3 million worth of shares. Moreover, Renaissance Technologies, Point72 Asset Management, and Arrowstreet Capital were also bullish on Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, established the most outsized position in Carrizo Oil & Gas, Inc. (NASDAQ:CRZO). Point72 Asset Management had $6.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $6.6 million investment in the stock during the quarter. The other funds with brand new CRZO positions are Glenn Russell Dubin’s Highbridge Capital Management, William Harnisch’s Peconic Partners LLC, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) but similarly valued. These stocks are AAR Corp. (NYSE:AIR), Keane Group, Inc. (NYSE:FRAC), Viad Corp (NYSE:VVI), and At Home Group Inc. (NYSE:HOME). This group of stocks’ market caps resemble CRZO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIR | 23 | 113938 | 9 |
| FRAC | 28 | 554730 | 2 |
| VVI | 13 | 145979 | -2 |
| HOME | 32 | 247769 | 8 |
| Average | 24 | 265604 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $114 million in CRZO’s case. At Home Group Inc. (NYSE:HOME) is the most popular stock in this table. On the other hand Viad Corp (NYSE:VVI) is the least popular one with only 13 bullish hedge fund positions. Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CRZO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CRZO investors were disappointed as the stock returned -25.3% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
