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 Capstead Mortgage Corporation (NYSE:CMO) , and what that likely means for the prospects of the company and its stock.
Capstead Mortgage Corporation (NYSE:CMO) has experienced a decrease in hedge fund sentiment recently. There were 11 hedge funds in our database with CMO positions at the end of the previous quarter, compared to 9 at the end of Q3. 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 Nordic American Tanker Ltd (NYSE:NAT), Monotype Imaging Holdings Inc. (NASDAQ:TYPE), and Associated Capital Group Inc (NYSE:AC) 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.
How are hedge funds trading Capstead Mortgage Corporation (NYSE:CMO)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CMO over the last 5 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons’ Renaissance Technologies which is one of the largest hedge funds in the world, has the most valuable position in Capstead Mortgage Corporation (NYSE:CMO), worth close to $30.3 million. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital holding a $2.6 million position. Some other peers that are bullish contain Cliff Asness’ AQR Capital Management, Clinton Group and Robert B. Gillam’s McKinley Capital Management. 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-microcap stocks.
Because Capstead Mortgage Corporation (NYSE:CMO) has faced a decline in interest from the smart money, logic holds that there was a specific group of fund managers that elected to cut their full holdings heading into Q4. At the top of the heap, Matthew Hulsizer’s PEAK6 Capital Management dropped the biggest stake of all the hedgies followed by Insider Monkey, comprising about $0.4 million in call options. D E Shaw, also dropped its stock, about $0.4 million worth.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Capstead Mortgage Corporation (NYSE:CMO) but similarly valued. We will take a look at Nordic American Tanker Ltd (NYSE:NAT), Monotype Imaging Holdings Inc. (NASDAQ:TYPE), Associated Capital Group Inc (NYSE:AC), and Biglari Holdings Inc (NYSE:BH). All of these stocks’ market caps match CMO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NAT | 13 | 67747 | 0 |
| TYPE | 20 | 95672 | 3 |
| AC | 4 | 25656 | 1 |
| BH | 5 | 40413 | -1 |
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $36 million in CMO’s case. Monotype Imaging Holdings Inc. (NASDAQ:TYPE) is the most popular stock in this table. On the other hand Associated Capital Group Inc (NYSE:AC) is the least popular one with only 4 bullish hedge fund positions. Capstead Mortgage Corporation (NYSE:CMO) 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 TYPE might be a better candidate to consider taking a long position in.
Disclosure: None
