Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Corteva, Inc. (NYSE:CTVA) changed recently.
Corteva, Inc. (NYSE:CTVA) has seen a decrease in support from the world’s most elite money managers of late. CTVA was in 35 hedge funds’ portfolios at the end of September. There were 36 hedge funds in our database with CTVA positions at the end of the previous quarter. Our calculations also showed that CTVA 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.
Israel Englander of Millennium Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the new hedge fund action surrounding Corteva, Inc. (NYSE:CTVA).
How have hedgies been trading Corteva, Inc. (NYSE:CTVA)?
Heading into the fourth quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CTVA over the last 17 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 Corteva, Inc. (NYSE:CTVA) was held by Sessa Capital, which reported holding $131.2 million worth of stock at the end of September. It was followed by Eminence Capital with a $79 million position. Other investors bullish on the company included Laurion Capital Management, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Sessa Capital allocated the biggest weight to Corteva, Inc. (NYSE:CTVA), around 14.95% of its portfolio. Bronte Capital is also relatively very bullish on the stock, designating 6.2 percent of its 13F equity portfolio to CTVA.
Judging by the fact that Corteva, Inc. (NYSE:CTVA) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of funds that slashed their full holdings last quarter. Interestingly, Lee Ainslie’s Maverick Capital sold off the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $97.9 million in stock, and David Rosen’s Rubric Capital Management was right behind this move, as the fund sold off about $50.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Corteva, Inc. (NYSE:CTVA). We will take a look at Tencent Music Entertainment Group (NYSE:TME), Zoom Video Communications, Inc. (NASDAQ:ZM), Wipro Limited (NYSE:WIT), and McCormick & Company, Incorporated (NYSE:MKC). This group of stocks’ market caps match CTVA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TME | 15 | 378566 | 4 |
| ZM | 30 | 468958 | -2 |
| WIT | 12 | 111102 | -2 |
| MKC | 27 | 138492 | -3 |
| Average | 21 | 274280 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $274 million. That figure was $458 million in CTVA’s case. Zoom Video Communications, Inc. (NASDAQ:ZM) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Corteva, Inc. (NYSE:CTVA) 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. Unfortunately CTVA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CTVA were disappointed as the stock returned -6.6% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
