Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Cree, Inc. (NASDAQ:CREE) to find out whether it was one of their high conviction long-term ideas.
Cree, Inc. (NASDAQ:CREE) investors should be aware of an increase in enthusiasm from smart money of late. Our calculations also showed that CREE isn’t among the 30 most popular stocks among hedge funds.
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.
We’re going to take a look at the fresh hedge fund action regarding Cree, Inc. (NASDAQ:CREE).
What does smart money think about Cree, Inc. (NASDAQ:CREE)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 56% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CREE over the last 15 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Columbus Circle Investors, managed by Principal Global Investors, holds the biggest position in Cree, Inc. (NASDAQ:CREE). Columbus Circle Investors has a $40 million position in the stock, comprising 1% of its 13F portfolio. The second most bullish fund manager is PEAK6 Capital Management, led by Matthew Hulsizer, holding a $15.9 million call position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Brian Ashford-Russell and Tim Woolley’s Polar Capital, Louis Bacon’s Moore Global Investments and Ken Griffin’s Citadel Investment Group.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Moore Global Investments, managed by Louis Bacon, created the biggest position in Cree, Inc. (NASDAQ:CREE). Moore Global Investments had $14.3 million invested in the company at the end of the quarter. Larry Chen and Terry Zhang’s Tairen Capital also made a $8.5 million investment in the stock during the quarter. The following funds were also among the new CREE investors: Bruce Kovner’s Caxton Associates LP, Michael Gelband’s ExodusPoint Capital, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now take a look at hedge fund activity in other stocks similar to Cree, Inc. (NASDAQ:CREE). These stocks are Sabre Corporation (NASDAQ:SABR), Woodward Inc (NASDAQ:WWD), LPL Financial Holdings Inc (NASDAQ:LPLA), and CAE, Inc. (NYSE:CAE). This group of stocks’ market values are similar to CREE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SABR | 21 | 260999 | -3 |
| WWD | 20 | 268959 | 6 |
| LPLA | 33 | 807308 | -1 |
| CAE | 10 | 117527 | 1 |
| Average | 21 | 363698 | 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 $364 million. That figure was $88 million in CREE’s case. LPL Financial Holdings Inc (NASDAQ:LPLA) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 10 bullish hedge fund positions. Cree, Inc. (NASDAQ:CREE) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CREE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CREE investors were disappointed as the stock returned 1.1% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
