Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: CyrusOne Inc (NASDAQ:CONE).
CyrusOne Inc (NASDAQ:CONE) was in 17 hedge funds’ portfolios at the end of the first quarter of 2019. CONE investors should pay attention to an increase in hedge fund sentiment recently. There were 14 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.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
We’re going to review the recent hedge fund action surrounding CyrusOne Inc (NASDAQ:CONE).
How are hedge funds trading CyrusOne Inc (NASDAQ:CONE)?
Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in CONE a year ago. 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, AEW Capital Management held the most valuable stake in CyrusOne Inc (NASDAQ:CONE), which was worth $37.6 million at the end of the first quarter. On the second spot was Citadel Investment Group which amassed $33.8 million worth of shares. Moreover, Fisher Asset Management, Balyasny Asset Management, and Point72 Asset Management were also bullish on CyrusOne Inc (NASDAQ:CONE), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in CyrusOne Inc (NASDAQ:CONE). Citadel Investment Group had $33.8 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $27.3 million investment in the stock during the quarter. The following funds were also among the new CONE investors: Steve Cohen’s Point72 Asset Management, D. E. Shaw’s D E Shaw, and Greg Poole’s Echo Street Capital Management.
Let’s now review hedge fund activity in other stocks similar to CyrusOne Inc (NASDAQ:CONE). We will take a look at RealPage, Inc. (NASDAQ:RP), Jefferies Financial Group Inc. (NYSE:JEF), Companhia Siderurgica Nacional (NYSE:SID), and Wix.Com Ltd (NASDAQ:WIX). This group of stocks’ market valuations are closest to CONE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RP | 26 | 435872 | 5 |
| JEF | 35 | 669334 | -1 |
| SID | 8 | 69878 | 1 |
| WIX | 27 | 960848 | 0 |
| Average | 24 | 533983 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $534 million. That figure was $193 million in CONE’s case. Jefferies Financial Group Inc. (NYSE:JEF) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 8 bullish hedge fund positions. CyrusOne Inc (NASDAQ:CONE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on CONE as the stock returned 16.9% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
