World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Is Aurora Cannabis Inc. (NYSE:ACB) a buy, sell, or hold? Investors who are in the know are getting less bullish. The number of bullish hedge fund positions shrunk by 1 lately. Our calculations also showed that ACB isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the latest hedge fund action surrounding Aurora Cannabis Inc. (NYSE:ACB).
How have hedgies been trading Aurora Cannabis Inc. (NYSE:ACB)?
Heading into the third quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ACB over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Aurora Cannabis Inc. (NYSE:ACB) was held by Citadel Investment Group, which reported holding $13.5 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $13.3 million position. Other investors bullish on the company included OZ Management, Citadel Investment Group, and Arrowgrass Capital Partners.
Because Aurora Cannabis Inc. (NYSE:ACB) has faced declining sentiment from the smart money, logic holds that there exists a select few funds who sold off their full holdings by the end of the second quarter. It’s worth mentioning that Cliff Asness’s AQR Capital Management said goodbye to the largest position of the 750 funds followed by Insider Monkey, totaling about $64.3 million in stock, and William Harnisch’s Peconic Partners LLC was right behind this move, as the fund sold off about $22.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Aurora Cannabis Inc. (NYSE:ACB) but similarly valued. These stocks are Alliance Data Systems Corporation (NYSE:ADS), Telecom Argentina S.A. (NYSE:TEO), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), and Kohl’s Corporation (NYSE:KSS). This group of stocks’ market values match ACB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADS | 34 | 1420142 | -4 |
| TEO | 3 | 54171 | -6 |
| NBIX | 34 | 1237372 | -1 |
| KSS | 29 | 550214 | 2 |
| Average | 25 | 815475 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $815 million. That figure was $29 million in ACB’s case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 3 bullish hedge fund positions. Aurora Cannabis Inc. (NYSE:ACB) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ACB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ACB investors were disappointed as the stock returned -43.9% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
