We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards City Office REIT Inc (NYSE:CIO), and what that likely means for the prospects of the company and its stock.
City Office REIT Inc (NYSE:CIO) investors should pay attention to an increase in hedge fund sentiment in recent months. There were 5 hedge funds in our database with CIO positions at the end of the second quarter, which had risen to 6 by the end of the third quarter. At the end of this article we will also compare CIO to other stocks including Lionbridge Technologies, Inc. (NASDAQ:LIOX), Novan Inc (NASDAQ:NOVN), and Aerohive Networks Inc (NYSE:HIVE) to get a better sense of its popularity.
Follow City Office Reit Inc. (CVE:CIO)
Follow City Office Reit Inc. (CVE:CIO)
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.
g0d4ather / shutterstock.com
What have hedge funds been doing with City Office REIT Inc (NYSE:CIO)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a rise of 20% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in CIO heading into this year, though that had skyrocketed to 11 by the end of Q1. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Philip Hempleman’s Ardsley Partners holds the most valuable position in City Office REIT Inc (NYSE:CIO). Ardsley Partners has a $10.2 million position in the stock, comprising 1.6% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, one of the largest hedge funds in the world, holding a $7.3 million position. Remaining hedge funds and institutional investors that hold long positions encompass Israel Englander’s Millennium Management, Amy Minella’s Cardinal Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.
Consequently, specific money managers have been driving this bullishness. Arrowstreet Capital initiated the largest position in City Office REIT Inc (NYSE:CIO). Arrowstreet Capital had $0.6 million invested in the company at the end of the quarter. Cliff Asness’ AQR Capital Management also initiated a $0.2 million position during the quarter.
Let’s now review hedge fund activity in other stocks similar to City Office REIT Inc (NYSE:CIO). We will take a look at Lionbridge Technologies, Inc. (NASDAQ:LIOX), Novan Inc (NASDAQ:NOVN), Aerohive Networks Inc (NYSE:HIVE), and Bank of Marin Bancorp (NASDAQ:BMRC). This group of stocks’ market values match CIO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LIOX | 17 | 72332 | 0 |
| NOVN | 5 | 18321 | 5 |
| HIVE | 10 | 28795 | 1 |
| BMRC | 5 | 23383 | -1 |
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $21 million in CIO’s case. Lionbridge Technologies, Inc. (NASDAQ:LIOX) is the most popular stock in this table. On the other hand Novan Inc (NASDAQ:NOVN) is the least popular one with only 5 bullish hedge fund positions. City Office REIT Inc (NYSE:CIO) 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. In this regard LIOX might be a better candidate to consider taking a long position in.
Disclosure: None
