It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month 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 isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Four Corners Property Trust, Inc. (NYSE:FCPT).
Is Four Corners Property Trust, Inc. (NYSE:FCPT) the right pick for your portfolio? Prominent investors are taking a pessimistic view. The number of bullish hedge fund bets fell by 4 in recent months. Our calculations also showed that FCPT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FCPT was in 17 hedge funds’ portfolios at the end of the third quarter of 2019. There were 21 hedge funds in our database with FCPT positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Clint Carlson of Carlson Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the recent hedge fund action surrounding Four Corners Property Trust, Inc. (NYSE:FCPT).
How have hedgies been trading Four Corners Property Trust, Inc. (NYSE:FCPT)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FCPT over the last 17 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Carlson Capital was the largest shareholder of Four Corners Property Trust, Inc. (NYSE:FCPT), with a stake worth $30.4 million reported as of the end of September. Trailing Carlson Capital was Balyasny Asset Management, which amassed a stake valued at $16.4 million. Waterfront Capital Partners, Echo Street Capital Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Waterfront Capital Partners allocated the biggest weight to Four Corners Property Trust, Inc. (NYSE:FCPT), around 2.48% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, dishing out 0.55 percent of its 13F equity portfolio to FCPT.
Seeing as Four Corners Property Trust, Inc. (NYSE:FCPT) has witnessed a decline in interest from the smart money, logic holds that there exists a select few fund managers who sold off their full holdings last quarter. At the top of the heap, Bruce Kovner’s Caxton Associates dumped the biggest investment of the 750 funds tracked by Insider Monkey, totaling close to $0.9 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dropped its stock, about $0.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 4 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Four Corners Property Trust, Inc. (NYSE:FCPT) but similarly valued. We will take a look at Fabrinet (NYSE:FN), Carbon Black, Inc. (NASDAQ:CBLK), Crocs, Inc. (NASDAQ:CROX), and Qudian Inc. (NYSE:QD). This group of stocks’ market valuations are closest to FCPT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FN | 21 | 175848 | -4 |
| CBLK | 21 | 352066 | 4 |
| CROX | 27 | 417916 | 6 |
| QD | 12 | 80964 | -10 |
| Average | 20.25 | 256699 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $257 million. That figure was $120 million in FCPT’s case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand Qudian Inc. (NYSE:QD) is the least popular one with only 12 bullish hedge fund positions. Four Corners Property Trust, Inc. (NYSE:FCPT) 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 FCPT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FCPT investors were disappointed as the stock returned 0.1% 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.
