It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Charles River Laboratories International Inc. (NYSE:CRL) and compare its performance against hedge funds’ favorite stocks.
Charles River Laboratories International Inc. (NYSE:CRL) shareholders have witnessed an increase in enthusiasm from smart money in recent months. CRL was in 32 hedge funds’ portfolios at the end of the third quarter of 2019. There were 29 hedge funds in our database with CRL positions at the end of the previous quarter. Our calculations also showed that CRL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Cliff Asness of AQR Capital 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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s go over the recent hedge fund action regarding Charles River Laboratories International Inc. (NYSE:CRL).
What have hedge funds been doing with Charles River Laboratories International Inc. (NYSE:CRL)?
At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CRL over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Charles River Laboratories International Inc. (NYSE:CRL), which was worth $265.7 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $192.8 million worth of shares. Ariel Investments, Fisher Asset Management, and Sculptor 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 MD Sass allocated the biggest weight to Charles River Laboratories International Inc. (NYSE:CRL), around 3.14% of its 13F portfolio. Endurant Capital Management is also relatively very bullish on the stock, designating 2.95 percent of its 13F equity portfolio to CRL.
Consequently, some big names have jumped into Charles River Laboratories International Inc. (NYSE:CRL) headfirst. Endurant Capital Management, managed by Vishal Saluja and Pham Quang, assembled the most valuable position in Charles River Laboratories International Inc. (NYSE:CRL). Endurant Capital Management had $9.9 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also made a $1.6 million investment in the stock during the quarter. The following funds were also among the new CRL investors: Paul Tudor Jones’s Tudor Investment Corp, Ray Dalio’s Bridgewater Associates, and Matthew Tewksbury’s Stevens Capital Management.
Let’s check out hedge fund activity in other stocks similar to Charles River Laboratories International Inc. (NYSE:CRL). These stocks are East West Bancorp, Inc. (NASDAQ:EWBC), Watsco Inc (NYSE:WSO), HubSpot Inc (NYSE:HUBS), and Momo Inc (NASDAQ:MOMO). This group of stocks’ market caps resemble CRL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EWBC | 27 | 426545 | -1 |
| WSO | 18 | 138904 | -4 |
| HUBS | 34 | 820740 | 1 |
| MOMO | 27 | 827296 | 5 |
| Average | 26.5 | 553371 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $553 million. That figure was $875 million in CRL’s case. HubSpot Inc (NYSE:HUBS) is the most popular stock in this table. On the other hand Watsco Inc (NYSE:WSO) is the least popular one with only 18 bullish hedge fund positions. Charles River Laboratories International Inc. (NYSE:CRL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on CRL, though not to the same extent, as the stock returned 33.7% during 2019 (as of 12/23) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
