Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Colony Credit Real Estate, Inc. (NYSE:CLNC).
Is Colony Credit Real Estate, Inc. (NYSE:CLNC) a worthy investment today? The smart money is taking a bullish view. The number of bullish hedge fund positions increased by 1 in recent months. Our calculations also showed that CLNC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 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 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.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the recent hedge fund action regarding Colony Credit Real Estate, Inc. (NYSE:CLNC).
Hedge fund activity in Colony Credit Real Estate, Inc. (NYSE:CLNC)
Heading into the first quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CLNC over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Balyasny Asset Management, managed by Dmitry Balyasny, holds the number one position in Colony Credit Real Estate, Inc. (NYSE:CLNC). Balyasny Asset Management has a $10.2 million position in the stock, comprising 0.1% of its 13F portfolio. On Balyasny Asset Management’s heels is HBK Investments, led by David Costen Haley, holding a $7 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish encompass Israel Englander’s Millennium Management, Don Morgan’s Brigade Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Brigade Capital allocated the biggest weight to Colony Credit Real Estate, Inc. (NYSE:CLNC), around 0.15% of its 13F portfolio. HBK Investments is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to CLNC.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the largest position in Colony Credit Real Estate, Inc. (NYSE:CLNC). Balyasny Asset Management had $10.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $5.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Don Morgan’s Brigade Capital and Michael Gelband’s ExodusPoint Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Colony Credit Real Estate, Inc. (NYSE:CLNC) but similarly valued. These stocks are Sonos, Inc. (NASDAQ:SONO), Alexander’s, Inc. (NYSE:ALX), Grupo Simec S.A.B. de C.V. (NYSE:SIM), and Broadmark Realty Capital Inc. (NYSE:BRMK). All of these stocks’ market caps are closest to CLNC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SONO | 26 | 196559 | -3 |
| ALX | 13 | 115349 | 1 |
| SIM | 1 | 2589 | 0 |
| BRMK | 17 | 152022 | 2 |
| Average | 14.25 | 116630 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $27 million in CLNC’s case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand Grupo Simec S.A.B. de C.V. (NYSE:SIM) is the least popular one with only 1 bullish hedge fund positions. Colony Credit Real Estate, Inc. (NYSE:CLNC) 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. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CLNC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CLNC investors were disappointed as the stock returned -72.9% during the same time 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 most of these stocks already outperformed the market in 2020.
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.
