Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards CRA International, Inc. (NASDAQ:CRAI).
CRA International, Inc. (NASDAQ:CRAI) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that CRAI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare CRAI to other stocks including Canaan Inc. (NASDAQ:CAN), Mercantile Bank Corp. (NASDAQ:MBWM), and Ooma Inc (NYSE:OOMA) to get a better sense of its popularity.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Rogers Ariel Investments
John Rogers of Ariel Investments
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap 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. With all of this in mind we're going to take a gander at the key hedge fund action encompassing CRA International, Inc. (NASDAQ:CRAI).
Do Hedge Funds Think CRAI Is A Good Stock To Buy Now?
At third quarter's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CRAI over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of CRA International, Inc. (NASDAQ:CRAI), with a stake worth $15.8 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $3.3 million. Royce & Associates, Ancora Advisors, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Ancora Advisors allocated the biggest weight to CRA International, Inc. (NASDAQ:CRAI), around 0.09% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to CRAI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PDT Partners. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Ariel Investments).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as CRA International, Inc. (NASDAQ:CRAI) but similarly valued. These stocks are Canaan Inc. (NASDAQ:CAN), Mercantile Bank Corp. (NASDAQ:MBWM), Ooma Inc (NYSE:OOMA), Concert Pharmaceuticals Inc (NASDAQ:CNCE), Urovant Sciences Ltd. (NASDAQ:UROV), Utah Medical Products, Inc. (NASDAQ:UTMD), and Midland States Bancorp, Inc. (NASDAQ:MSBI). All of these stocks' market caps resemble CRAI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAN,5,3819,2 MBWM,6,17611,-1 OOMA,15,83266,-2 CNCE,16,79858,3 UROV,6,39936,-1 UTMD,7,28875,0 MSBI,10,9359,0 Average,9.3,37532,0.1 [/table]
As you can see these stocks had an average of 9.3 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $31 million in CRAI's case. Concert Pharmaceuticals Inc (NASDAQ:CNCE) is the most popular stock in this table. On the other hand Canaan Inc. (NASDAQ:CAN) is the least popular one with only 5 bullish hedge fund positions. CRA International, Inc. (NASDAQ:CRAI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CRAI is 58. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on CRAI as the stock returned 37.6% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
