The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at KKR Real Estate Finance Trust Inc. (NYSE:KREF) from the perspective of those elite funds.
Hedge fund interest in KKR Real Estate Finance Trust Inc. (NYSE:KREF) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare KREF to other stocks including LendingClub Corp (NYSE:LC), The Marcus Corporation (NYSE:MCS), and City Holding Company (NASDAQ:CHCO) to get a better sense of its popularity.
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 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to take a look at the latest hedge fund action surrounding KKR Real Estate Finance Trust Inc. (NYSE:KREF).
What have hedge funds been doing with KKR Real Estate Finance Trust Inc. (NYSE:KREF)?
Heading into the first quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KREF over the last 14 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Elliott Management was the largest shareholder of KKR Real Estate Finance Trust Inc. (NYSE:KREF), with a stake worth $9.9 million reported as of the end of December. Trailing Elliott Management was Alyeska Investment Group, which amassed a stake valued at $9.7 million. Renaissance Technologies, Millennium Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Balyasny Asset Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Elliott Management).
Let’s check out hedge fund activity in other stocks similar to KKR Real Estate Finance Trust Inc. (NYSE:KREF). These stocks are LendingClub Corp (NYSE:LC), The Marcus Corporation (NYSE:MCS), City Holding Company (NASDAQ:CHCO), and Southside Bancshares, Inc. (NASDAQ:SBSI). This group of stocks’ market values are similar to KREF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LC | 7 | 3096 | -2 |
| MCS | 11 | 70912 | -2 |
| CHCO | 10 | 21926 | 2 |
| SBSI | 6 | 55613 | -3 |
| Average | 8.5 | 37887 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $36 million in KREF’s case. The Marcus Corporation (NYSE:MCS) is the most popular stock in this table. On the other hand Southside Bancshares, Inc. (NASDAQ:SBSI) is the least popular one with only 6 bullish hedge fund positions. KKR Real Estate Finance Trust Inc. (NYSE:KREF) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately KREF wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); KREF investors were disappointed as the stock returned 7% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
