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.
What have hedge funds been doing with Campus Crest Communities Inc (NYSE:CCG)?
At the end of the March quarter, a total of nine hedge funds tracked by Insider Monkey were bullish in this stock, unchanged from the previous reporting period. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly.
According to hedge fund intelligence website Insider Monkey, J. Alan Reid, Jr.‘s Forward Management had the biggest position in Campus Crest Communities Inc (NYSE:CCG), worth close to $28.6 million, comprising 1.7% of its total 13F portfolio. The second-most bullish hedge fund was Joshua Friedman and Mitchell Julis’ Canyon Capital Advisors, with a $27.1 million position; the fund had 0.9% of its 13F portfolio invested in the stock. Remaining peers that were bullish contain Marc Lisker, Glenn Fuhrman and John Phelan’s MSDC Management, George Hall’s Clinton Group, and Michael Platt and William Reeves’ BlueCrest Capital Mgmt.
We can see that there were also a few hedge funds that decided to sell off their full holdings in Campus Crest Communities Inc (NYSE:CCG) during the March quarter. At the top of the heap, Ken Griffin‘s Citadel Investment Group dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $3.1 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $2.2 million worth.
Given the bullish sentiment of funds in light of a steadily declining stock, we believe the entry point is a good one on Campus Crest at the moment.
Disclosure: None
