Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of CoStar Group Inc (NASDAQ:CSGP) based on that data.
CoStar Group Inc (NASDAQ:CSGP) was in 35 hedge funds’ portfolios at the end of September. CSGP shareholders have witnessed an increase in hedge fund interest of late. There were 32 hedge funds in our database with CSGP holdings at the end of the previous quarter. Our calculations also showed that CSGP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s review the recent hedge fund action surrounding CoStar Group Inc (NASDAQ:CSGP).
What have hedge funds been doing with CoStar Group Inc (NASDAQ:CSGP)?
At Q3’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CSGP over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Melvin Capital Management was the largest shareholder of CoStar Group Inc (NASDAQ:CSGP), with a stake worth $262.9 million reported as of the end of September. Trailing Melvin Capital Management was Select Equity Group, which amassed a stake valued at $223.2 million. Bares Capital Management, Citadel Investment Group, and Millennium Management 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 Wildcat Capital Management allocated the biggest weight to CoStar Group Inc (NASDAQ:CSGP), around 26.86% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, setting aside 6.47 percent of its 13F equity portfolio to CSGP.
Now, some big names were breaking ground themselves. Interval Partners, managed by Gregg Moskowitz, created the biggest position in CoStar Group Inc (NASDAQ:CSGP). Interval Partners had $11.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also made a $7.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management, Paul Tudor Jones’s Tudor Investment Corp, and Matthew Iorio’s White Elm Capital.
Let’s now review hedge fund activity in other stocks similar to CoStar Group Inc (NASDAQ:CSGP). These stocks are Essex Property Trust Inc (NYSE:ESS), TELUS Corporation (NYSE:TU), M&T Bank Corporation (NYSE:MTB), and Smith & Nephew plc (NYSE:SNN). This group of stocks’ market caps are similar to CSGP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ESS | 18 | 400479 | -1 |
| TU | 17 | 301500 | 4 |
| MTB | 29 | 1247730 | -2 |
| SNN | 6 | 297897 | -8 |
| Average | 17.5 | 561902 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $562 million. That figure was $1384 million in CSGP’s case. M&T Bank Corporation (NYSE:MTB) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks CoStar Group Inc (NASDAQ:CSGP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on CSGP as the stock returned 78.4% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
