Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Exantas Capital Corp. (NYSE:XAN).
Exantas Capital Corp. (NYSE:XAN) investors should be aware of a decrease in hedge fund interest lately. XAN was in 16 hedge funds’ portfolios at the end of June. There were 17 hedge funds in our database with XAN positions at the end of the previous quarter. Our calculations also showed that XAN isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. We’re going to analyze the recent hedge fund action regarding Exantas Capital Corp. (NYSE:XAN).
How are hedge funds trading Exantas Capital Corp. (NYSE:XAN)?
At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in XAN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, HBK Investments held the most valuable stake in Exantas Capital Corp. (NYSE:XAN), which was worth $17.2 million at the end of the second quarter. On the second spot was Indaba Capital Management which amassed $10.7 million worth of shares. Moreover, Forward Management, Ancora Advisors, and Millennium Management were also bullish on Exantas Capital Corp. (NYSE:XAN), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Exantas Capital Corp. (NYSE:XAN) has witnessed falling interest from the smart money, it’s easy to see that there were a few hedgies that elected to cut their full holdings in the second quarter. It’s worth mentioning that Carl Goldsmith and Scott Klein’s Beach Point Capital Management dumped the biggest investment of all the hedgies followed by Insider Monkey, totaling close to $0.4 million in stock. Roger Ibbotson’s fund, Zebra Capital Management, also sold off its stock, about $0.2 million worth. These transactions are important to note, as total hedge fund interest fell by 1 funds in the second quarter.
Let’s go over hedge fund activity in other stocks similar to Exantas Capital Corp. (NYSE:XAN). We will take a look at Fiesta Restaurant Group Inc (NASDAQ:FRGI), PCSB Financial Corporation (NASDAQ:PCSB), Tuscan Holdings Corp. (NASDAQ:THCB), and ProQR Therapeutics NV (NASDAQ:PRQR). This group of stocks’ market caps match XAN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FRGI | 14 | 118168 | -4 |
| PCSB | 10 | 28399 | 1 |
| THCB | 12 | 58263 | 4 |
| PRQR | 9 | 64723 | -1 |
| Average | 11.25 | 67388 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $65 million in XAN’s case. Fiesta Restaurant Group Inc (NASDAQ:FRGI) is the most popular stock in this table. On the other hand ProQR Therapeutics NV (NASDAQ:PRQR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Exantas Capital Corp. (NYSE:XAN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on XAN, though not to the same extent, as the stock returned 2.7% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
