How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Corenergy Infrastructure Trust Inc (NYSE:CORR).
Is Corenergy Infrastructure Trust Inc (NYSE:CORR) a marvelous stock to buy now? The best stock pickers are selling. The number of bullish hedge fund positions were trimmed by 1 lately. Our calculations also showed that CORR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s take a look at the recent hedge fund action regarding Corenergy Infrastructure Trust Inc (NYSE:CORR).
How are hedge funds trading Corenergy Infrastructure Trust Inc (NYSE:CORR)?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CORR over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, founded by Jim Simons, holds the most valuable position in Corenergy Infrastructure Trust Inc (NYSE:CORR). Renaissance Technologies has a $46.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions encompass David Harding’s Winton Capital Management, Ken Griffin’s Citadel Investment Group and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position Caxton Associates allocated the biggest weight to Corenergy Infrastructure Trust Inc (NYSE:CORR), around 0.21% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to CORR.
Seeing as Corenergy Infrastructure Trust Inc (NYSE:CORR) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that slashed their entire stakes last quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group sold off the biggest stake of the 750 funds followed by Insider Monkey, totaling an estimated $1.8 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also said goodbye to its stock, about $0.8 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Corenergy Infrastructure Trust Inc (NYSE:CORR). We will take a look at Innophos Holdings, Inc. (NASDAQ:IPHS), Fly Leasing Ltd (NYSE:FLY), B. Riley Financial, Inc. (NASDAQ:RILY), and Luther Burbank Corporation (NASDAQ:LBC). This group of stocks’ market values match CORR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IPHS | 12 | 42749 | 0 |
| FLY | 7 | 70263 | 0 |
| RILY | 14 | 118890 | 4 |
| LBC | 7 | 10312 | 0 |
| Average | 10 | 60554 | 1 |
View table here if you experience formatting issues.
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 $61 million. That figure was $67 million in CORR’s case. B. Riley Financial, Inc. (NASDAQ:RILY) is the most popular stock in this table. On the other hand Fly Leasing Ltd (NYSE:FLY) is the least popular one with only 7 bullish hedge fund positions. Corenergy Infrastructure Trust Inc (NYSE:CORR) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CORR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CORR investors were disappointed as the stock returned -4.7% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
