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 Care.com Inc (NYSE:CRCM).
Care.com Inc (NYSE:CRCM) shareholders have witnessed a decrease in enthusiasm from smart money lately. CRCM was in 17 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with CRCM holdings at the end of the previous quarter. Our calculations also showed that CRCM 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.
In the 21st century investor’s toolkit there are plenty of gauges shareholders have at their disposal to evaluate their stock investments. Some of the less known gauges are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the top investment managers can beat the broader indices by a significant amount (see the details here).
Israel Englander of Millennium Management
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. We’re going to go over the new hedge fund action surrounding Care.com Inc (NYSE:CRCM).
What does smart money think about Care.com Inc (NYSE:CRCM)?
Heading into the fourth quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in CRCM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Care.com Inc (NYSE:CRCM) was held by Tenzing Global Investors, which reported holding $26.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $25.4 million position. Other investors bullish on the company included Portolan Capital Management, Millennium Management, and Engine Capital. In terms of the portfolio weights assigned to each position Tenzing Global Investors allocated the biggest weight to Care.com Inc (NYSE:CRCM), around 13.81% of its 13F portfolio. Engine Capital is also relatively very bullish on the stock, dishing out 3.88 percent of its 13F equity portfolio to CRCM.
Because Care.com Inc (NYSE:CRCM) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers who were dropping their positions entirely in the third quarter. Intriguingly, C. Jonathan Gattman’s Cloverdale Capital Management sold off the largest stake of all the hedgies followed by Insider Monkey, worth an estimated $10.4 million in stock. Cliff Asness’s fund, AQR Capital Management, also sold off its stock, about $3.6 million worth. These transactions are important to note, as total hedge fund interest dropped by 4 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Care.com Inc (NYSE:CRCM) but similarly valued. We will take a look at P.A.M. Transportation Services, Inc. (NASDAQ:PTSI), Spirit of Texas Bancshares, Inc. (NASDAQ:STXB), Civista Bancshares, Inc. (NASDAQ:CIVB), and HighPoint Resources Corporation (NYSE:HPR). This group of stocks’ market values match CRCM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PTSI | 1 | 23187 | 0 |
| STXB | 4 | 16316 | 3 |
| CIVB | 6 | 23279 | 2 |
| HPR | 10 | 38618 | 2 |
| Average | 5.25 | 25350 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $116 million in CRCM’s case. HighPoint Resources Corporation (NYSE:HPR) is the most popular stock in this table. On the other hand P.A.M. Transportation Services, Inc. (NASDAQ:PTSI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Care.com Inc (NYSE:CRCM) is more popular among hedge funds. 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. Hedge funds were also right about betting on CRCM as the stock returned 19.9% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
