Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about CDK Global Inc (NASDAQ: CDK ) in this article.
Is CDK Global Inc (NASDAQ: CDK ) a worthy investment today? The smart money is becoming less hopeful. The number of bullish hedge fund positions dropped by 2 in recent months. Our calculations also showed that cdk 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.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's take a look at the recent hedge fund action encompassing CDK Global Inc (NASDAQ: CDK ).
How have hedgies been trading CDK Global Inc (NASDAQ:CDK)?
Heading into the second quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 35 hedge funds with a bullish position in CDK a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Lakewood Capital Management , managed by Anthony Bozza, holds the number one position in CDK Global Inc (NASDAQ:CDK). Lakewood Capital Management has a $122 million position in the stock, comprising 3.4% of its 13F portfolio. Coming in second is D E Shaw , led by D. E. Shaw, holding a $103.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism encompass Cliff Asness's AQR Capital Management , John Overdeck and David Siegel's Two Sigma Advisors and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital .
Since CDK Global Inc (NASDAQ:CDK) has faced declining sentiment from the smart money, logic holds that there lies a certain "tier" of fund managers who sold off their entire stakes heading into Q3. Intriguingly, Doug Silverman and Alexander Klabin's Senator Investment Group said goodbye to the largest stake of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $67 million in stock, and Jim Simons's Renaissance Technologies was right behind this move, as the fund dropped about $11 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q3.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as CDK Global Inc (NASDAQ:CDK) but similarly valued. We will take a look at Service Corporation International (NYSE: SCI ), Xerox Corporation (NYSE: XRX ), Ares Capital Corporation (NASDAQ: ARCC ), and News Corp (NASDAQ: NWS ). This group of stocks' market valuations match CDK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SCI,20,527994,3 XRX,33,1378808,-11 ARCC,22,261488,-4 NWS,10,36380,-3 Average,21.25,551168,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $551 million. That figure was $549 million in CDK's case. Xerox Corporation (NYSE: XRX ) is the most popular stock in this table. On the other hand News Corp (NASDAQ: NWS ) is the least popular one with only 10 bullish hedge fund positions. CDK Global Inc (NASDAQ:CDK) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CDK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CDK were disappointed as the stock returned -16.2% during the same 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 .