Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Clean Energy Fuels Corp (NASDAQ:CLNE).
Clean Energy Fuels Corp (NASDAQ:CLNE) was in 10 hedge funds’ portfolios at the end of September. CLNE shareholders have witnessed an increase in enthusiasm from smart money recently. There were 8 hedge funds in our database with CLNE positions at the end of the previous quarter. Our calculations also showed that CLNE 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.
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.
Jim Simons of Renaissance Technologies
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 take a look at the fresh hedge fund action surrounding Clean Energy Fuels Corp (NASDAQ:CLNE).
How have hedgies been trading Clean Energy Fuels Corp (NASDAQ:CLNE)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in CLNE a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the most valuable position in Clean Energy Fuels Corp (NASDAQ:CLNE), worth close to $19.8 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Brian C. Freckmann of Lyon Street Capital, with a $1 million position; 1.9% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish comprise Philip Hempleman’s Ardsley Partners, David E. Shaw’s D E Shaw and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Lyon Street Capital allocated the biggest weight to Clean Energy Fuels Corp (NASDAQ:CLNE), around 1.87% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, earmarking 0.15 percent of its 13F equity portfolio to CLNE.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Lyon Street Capital, managed by Brian C. Freckmann, assembled the biggest position in Clean Energy Fuels Corp (NASDAQ:CLNE). Lyon Street Capital had $1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also initiated a $0.1 million position during the quarter. The following funds were also among the new CLNE investors: Ken Griffin’s Citadel Investment Group, Matthew Hulsizer’s PEAK6 Capital Management, and Ken Griffin’s Citadel Investment Group.
Let’s now review hedge fund activity in other stocks similar to Clean Energy Fuels Corp (NASDAQ:CLNE). We will take a look at Donnelley Financial Solutions, Inc. (NYSE:DFIN), Jianpu Technology Inc. (NYSE:JT), PennantPark Investment Corp. (NASDAQ:PNNT), and Donegal Group Inc (NASDAQ:DGICA). All of these stocks’ market caps are similar to CLNE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DFIN | 13 | 49425 | 1 |
| JT | 5 | 24532 | 1 |
| PNNT | 10 | 18868 | 1 |
| DGICA | 6 | 10730 | 2 |
| Average | 8.5 | 25889 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $22 million in CLNE’s case. Donnelley Financial Solutions, Inc. (NYSE:DFIN) is the most popular stock in this table. On the other hand Jianpu Technology Inc. (NYSE:JT) is the least popular one with only 5 bullish hedge fund positions. Clean Energy Fuels Corp (NASDAQ:CLNE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CLNE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CLNE were disappointed as the stock returned -5.8% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
