These Hedge Funds Dropped The Ball By Selling CSX Corporation (CSX) Too Early

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding CSX Corporation (NASDAQ:CSX).

CSX Corporation (NASDAQ:CSX) has seen a decrease in activity from the world’s largest hedge funds lately. CSX Corporation (NASDAQ:CSX) was in 46 hedge funds’ portfolios at the end of June. The all time high for this statistics is 63. There were 57 hedge funds in our database with CSX positions at the end of the first quarter. Our calculations also showed that CSX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a peek at the latest hedge fund action regarding CSX Corporation (NASDAQ:CSX).

How have hedgies been trading CSX Corporation (NASDAQ:CSX)?

At second quarter’s end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CSX over the last 20 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.

According to Insider Monkey’s hedge fund database, Soroban Capital Partners, managed by Eric W. Mandelblatt and Gaurav Kapadia, holds the number one position in CSX Corporation (NASDAQ:CSX). Soroban Capital Partners has a $763.5 million position in the stock, comprising 9.8% of its 13F portfolio. Coming in second is Fisher Asset Management, led by Ken Fisher, holding a $307.8 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions contain Robert Pitts’s Steadfast Capital Management, Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Soroban Capital Partners allocated the biggest weight to CSX Corporation (NASDAQ:CSX), around 9.77% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, designating 6.72 percent of its 13F equity portfolio to CSX.

Since CSX Corporation (NASDAQ:CSX) has experienced bearish sentiment from the smart money, we can see that there is a sect of money managers that decided to sell off their positions entirely by the end of the second quarter. Intriguingly, Steve Cohen’s Point72 Asset Management said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, worth close to $110.5 million in stock. Andreas Halvorsen’s fund, Viking Global, also dropped its stock, about $48.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 11 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 CSX Corporation (NASDAQ:CSX) but similarly valued. These stocks are Air Products & Chemicals, Inc. (NYSE:APD), Vale SA (NYSE:VALE), The Sherwin-Williams Company (NYSE:SHW), Autodesk, Inc. (NASDAQ:ADSK), Brookfield Asset Management Inc. (NYSE:BAM), Moody’s Corporation (NYSE:MCO), and Humana Inc (NYSE:HUM). This group of stocks’ market valuations resemble CSX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.4 hedge funds with bullish positions and the average amount invested in these stocks was $3338 million. That figure was $2291 million in CSX’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Vale SA (NYSE:VALE) is the least popular one with only 29 bullish hedge fund positions. CSX Corporation (NASDAQ:CSX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CSX is 35.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. A small number of hedge funds were also right about betting on CSX as the stock returned 17% since the end of the second quarter (through 10/23) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.