Many investors, including Carl Icahn or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the third quarter, many investors lost money due to unpredictable events such as the concerns over Valeant’s drug pricing policy that led to an overall drop among pharma stocks. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Ares Commercial Real Estate Corp (NYSE:ACRE) changed recently.
Despite an 8.28% dividend yield and a 5% year-to-date gains, Ares Commercial Real Estate Corp (NYSE:ACRE) investors should be aware of a decrease in support from the world’s most elite money managers lately. ACRE was in 13 hedge funds’ portfolios at the end of the third quarter of 2015. There were 14 hedge funds in our database with ACRE positions at the end of the previous quarter. At the end of this article we will also compare ACRE to other stocks including Xcerra Corp (NASDAQ:XCRA), Arrowhead Research Corp (NASDAQ:ARWR), and Ocean Rig UDW Inc (NASDAQ:ORIG) to get a better sense of its popularity.
Follow Ares Commercial Real Estate Corp (NYSE:ACRE)
Follow Ares Commercial Real Estate Corp (NYSE:ACRE)
According to most traders, hedge funds are seen as unimportant, old financial tools of yesteryear. While there are over an 8000 funds with their doors open today, Our experts hone in on the leaders of this club, about 700 funds. These investment experts oversee the majority of the hedge fund industry’s total capital, and by observing their highest performing equity investments, Insider Monkey has unsheathed various investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points per annum for a decade in their back tests.
Keeping this in mind, let’s view the key action surrounding Ares Commercial Real Estate Corp (NYSE:ACRE).
How are hedge funds trading Ares Commercial Real Estate Corp (NYSE:ACRE)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, down by 7% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, J. Alan Reid, Jr.’s Forward Management has the most valuable position in Ares Commercial Real Estate Corp (NYSE:ACRE), worth close to $6.9 million, comprising 0.6% of its total 13F portfolio. The second most bullish fund is Renaissance Technologies, with a $4.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish include Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group, and Amy Minella’ Cardinal Capital.
Seeing as Ares Commercial Real Estate Corp (NYSE:ACRE) has experienced a bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few fund managers that slashed their full holdings in the third quarter. At the top of the heap, Michael M. Rothenberg’s Moab Capital Partners sold off the largest investment of all the hedgies watched by Insider Monkey, totaling close to $5.8 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $2.6 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ares Commercial Real Estate Corp (NYSE:ACRE) but similarly valued. These stocks are Xcerra Corp (NASDAQ:XCRA), Arrowhead Research Corp (NASDAQ:ARWR), Ocean Rig UDW Inc (NASDAQ:ORIG), and Martha Stewart Living Omnimedia, Inc. (NYSE:MSO). This group of stocks’ market caps match ACRE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XCRA | 19 | 48566 | -3 |
| ARWR | 10 | 27001 | 1 |
| ORIG | 15 | 76592 | -1 |
| MSO | 10 | 42863 | -6 |
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $23 million in ACRE’s case. Xcerra Corp (NASDAQ:XCRA) is the most popular stock in this table. On the other hand Arrowhead Research Corp (NASDAQ:ARWR) is the least popular one with only 10 bullish hedge fund positions. Ares Commercial Real Estate Corp (NYSE:ACRE) 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. In this regard XCRA might be a better candidate to consider a long position.
