We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in CyrusOne Inc (NASDAQ:CONE)? The smart money sentiment can provide an answer to this question.
CyrusOne Inc (NASDAQ:CONE) was in 32 hedge funds’ portfolios at the end of December. CONE has experienced an increase in hedge fund interest lately. There were 24 hedge funds in our database with CONE positions at the end of the previous quarter. Our calculations also showed that CONE 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind let’s take a look at the latest hedge fund action regarding CyrusOne Inc (NASDAQ:CONE).
What does smart money think about CyrusOne Inc (NASDAQ:CONE)?
Heading into the first quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CONE over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in CyrusOne Inc (NASDAQ:CONE), which was worth $109.1 million at the end of the third quarter. On the second spot was Long Pond Capital which amassed $73.8 million worth of shares. Fisher Asset Management, D E Shaw, and Renaissance Technologies 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 Shoals Capital Management allocated the biggest weight to CyrusOne Inc (NASDAQ:CONE), around 10.24% of its 13F portfolio. Marlowe Partners is also relatively very bullish on the stock, earmarking 6.22 percent of its 13F equity portfolio to CONE.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Long Pond Capital, managed by John Khoury, established the largest position in CyrusOne Inc (NASDAQ:CONE). Long Pond Capital had $73.8 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $18.5 million position during the quarter. The other funds with brand new CONE positions are Greg Poole’s Echo Street Capital Management, Jeffrey Hinkle’s Shoals Capital Management, and David Harding’s Winton Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CyrusOne Inc (NASDAQ:CONE) but similarly valued. These stocks are AptarGroup, Inc. (NYSE:ATR), People’s United Financial, Inc. (NASDAQ:PBCT), Signature Bank (NASDAQ:SBNY), and AMERCO (NASDAQ:UHAL). This group of stocks’ market valuations resemble CONE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATR | 25 | 137409 | 2 |
| PBCT | 22 | 125898 | -3 |
| SBNY | 21 | 461716 | -15 |
| UHAL | 17 | 400076 | 7 |
| Average | 21.25 | 281275 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $281 million. That figure was $346 million in CONE’s case. AptarGroup, Inc. (NYSE:ATR) is the most popular stock in this table. On the other hand AMERCO (NASDAQ:UHAL) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks CyrusOne Inc (NASDAQ:CONE) is more popular among hedge funds. 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 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately CONE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CONE were disappointed as the stock returned -25.9% during the first two and a half months of 2020 (through March 16th) 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 Q1.
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.
