Derek C. Schrier‘s Indaba Capital Management has recently initiated a position in Campus Crest Communities Inc (NYSE:CCG) of some 4.19 million shares, according to a recent 13G form filed with the Securities and Exchange Commission. The holding amasses about 6.48% of the $362.74 million financial company’s outstanding shares and is valued at $23.51 million based on the current stock price. There are strategic changes going on at Campus Crest Communities Inc (NYSE:CCG) relating to its exposure to joint ventures, which is what may have possibly sparked Indaba Capital’s interest. The owner and manager of high-quality student housing properties recently signed several transaction agreements which will in effect dwindle its joint venture assets to just six, from 50 in November of last year, provided all of these transactions close in the third quarter as planned.
Among the hedge funds that we track, enthusiasm for Campus Crest Communities Inc (NYSE:CCG) grew considerably during the first quarter. Even though the number of firms with investments in the company remained unchanged at nine at the end of the first trimester, the aggregate investment of these funds rose to $90.21 million at the end of March compared to $59.85 million at the end of the previous quarter. This is despite a nearly 12% fall in Campus Crest Communities Inc (NYSE:CCG)’s stock price in the first three months. However, funds’ bullishness has yet to pay off, as the decline in price continued after that. So far this year shares are down by more than 23%. This is much worse than the average losses of 0.63% for the diversified REIT industry on a year-to-date basis. However, the stock’s dividend yield of 6.42% is among the highest among companies operating in the industry.
First a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers are dumber than a bucket of rocks when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy, which identifies the best small-cap stock picks of the best hedge fund managers returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too). What’s the reason for this discrepancy you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 135% since the launch of our small-cap strategy compared to less than 55% for the S&P 500 (see the details).
We also monitor insider activity to see the general sentiment top executives of a company have for the shares of those companies. However in the case of Campus Crest, there have been no insider transactions this year.
With all of that in mind, let’s move on to a detailed look at the latest hedge fund actions surrounding Campus Crest Communities.
