Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
CareTrust REIT, Inc. (NASDAQ:CTRE) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that CTRE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Clint Carlson of Carlson Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the key hedge fund action regarding CareTrust REIT, Inc. (NASDAQ:CTRE).
How have hedgies been trading CareTrust REIT, Inc. (NASDAQ:CTRE)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CTRE over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the biggest position in CareTrust REIT, Inc. (NASDAQ:CTRE), worth close to $33.2 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Carlson Capital, managed by Clint Carlson, which holds a $21.4 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish contain Dmitry Balyasny’s Balyasny Asset Management, Renaissance Technologies and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Eversept Partners allocated the biggest weight to CareTrust REIT, Inc. (NASDAQ:CTRE), around 1.02% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, designating 0.39 percent of its 13F equity portfolio to CTRE.
Judging by the fact that CareTrust REIT, Inc. (NASDAQ:CTRE) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies that elected to cut their entire stakes last quarter. At the top of the heap, Jeffrey Furber’s AEW Capital Management sold off the biggest stake of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $28.1 million in stock. Daniel Johnson’s fund, Gillson Capital, also sold off its stock, about $3.3 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CareTrust REIT, Inc. (NASDAQ:CTRE) but similarly valued. We will take a look at Select Medical Holdings Corporation (NYSE:SEM), Option Care Health, Inc. (NASDAQ:BIOS), Evertec Inc (NYSE:EVTC), and Iovance Biotherapeutics, Inc. (NASDAQ:IOVA). This group of stocks’ market valuations are similar to CTRE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SEM | 18 | 110991 | 1 |
| BIOS | 18 | 72446 | 3 |
| EVTC | 24 | 262435 | 2 |
| IOVA | 28 | 897726 | 6 |
| Average | 22 | 335900 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $336 million. That figure was $107 million in CTRE’s case. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is the most popular stock in this table. On the other hand Select Medical Holdings Corporation (NYSE:SEM) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks CareTrust REIT, Inc. (NASDAQ:CTRE) is even less popular than SEM. Hedge funds dodged a bullet by taking a bearish stance towards CTRE. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CTRE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CTRE investors were disappointed as the stock returned -11.2% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
