Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Community Healthcare Trust Inc (NYSE:CHCT) .
Community Healthcare Trust Inc (NYSE:CHCT) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as InVitae Corp (NYSE:NVTA), First Connecticut Bancorp Inc (NASDAQ:FBNK), and Gafisa SA (ADR) (NYSE:GFA) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Now, let’s take a look at the fresh action encompassing Community Healthcare Trust Inc (NYSE:CHCT).
What have hedge funds been doing with Community Healthcare Trust Inc (NYSE:CHCT)?
Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in CHCT over the last 5 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Dov Gertzulin of DG Capital Management holds the most valuable position in Community Healthcare Trust Inc (NYSE:CHCT). DG Capital Management has a $6.3 million position in the stock, comprising 13.3% of its 13F portfolio. Coming in second is Millennium Management, one of the 10 largest hedge funds in the world, which holds a $5.6 million position. Remaining members of the smart money with similar optimism encompass Charles Clough’s Clough Capital Partners, Jim Simons’ Renaissance Technologies and Chuck Royce’s Royce & Associates. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Mendon Capital Advisors. 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 AQR Capital Management).
Let’s go over hedge fund activity in other stocks similar to Community Healthcare Trust Inc (NYSE:CHCT). We will take a look at InVitae Corp (NYSE:NVTA), First Connecticut Bancorp Inc (NASDAQ:FBNK), Gafisa SA (ADR) (NYSE:GFA), and Silicon Graphics International Corp (NASDAQ:SGI). All of these stocks’ market caps match CHCT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVTA | 8 | 98771 | 0 |
| FBNK | 7 | 24519 | -5 |
| GFA | 3 | 2709 | 0 |
| SGI | 16 | 64365 | 7 |
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $28 million in CHCT’s case. Silicon Graphics International Corp (NASDAQ:SGI) is the most popular stock in this table. On the other hand Gafisa SA (ADR) (NYSE:GFA) is the least popular one with only 3 bullish hedge fund positions. Community Healthcare Trust Inc (NYSE:CHCT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SGI might be a better candidate to consider taking a long position in.
Disclosure: None
