The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards InfraREIT Inc (NYSE:HIFR).
InfraREIT Inc (NYSE:HIFR) experienced a decrease in hedge fund interest during the third quarter. At the end of September, 12 funds from our database held shares of HIFR. At the end of this article we will also compare HIFR to other stocks including Cardiovascular Systems Inc (NASDAQ:CSII), Goldman Sachs BDC Inc (NYSE:GSBD), and Halcon Resources Corp (NYSE:HK) to get a better sense of its popularity.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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With all of this in mind, we’re going to take a look at the new action regarding InfraREIT Inc (NYSE:HIFR).
What have hedge funds been doing with InfraREIT Inc (NYSE:HIFR)?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, down from 16 funds at the end of June. By comparison, 16 hedge funds held shares or bullish call options in HIFR heading into this year. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Phill Gross and Robert Atchinson’s Adage Capital Management has the largest position in InfraREIT Inc (NYSE:HIFR), worth close to $63.5 million, accounting for 0.2% of its total 13F portfolio. The second largest stake is held by Parag Vora’s HG Vora Capital Management, with a $43.5 million position; the fund has 5.6% of its 13F portfolio invested in the stock. Remaining peers that hold long positions comprise Stuart J. Zimmer’s Zimmer Partners, Bernard Lambilliotte’s Ecofin Ltd, and Ken Griffin’s Citadel Investment Group. We should note that Zimmer Partners is 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 InfraREIT Inc (NYSE:HIFR) has weathered falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that elected to cut their full holdings last quarter. Interestingly, Andrew Goldman’s Seven Locks Capital Management sold off the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth about $4.1 million in stock, and Jim Simons’ Renaissance Technologies was right behind this move, as the fund cut about $3.9 million worth of shares.
Let’s also examine hedge fund activity in other stocks similar to InfraREIT Inc (NYSE:HIFR). We will take a look at Cardiovascular Systems Inc (NASDAQ:CSII), Goldman Sachs BDC Inc (NYSE:GSBD), Halcon Resources Corp (NYSE:HK), and American Capital Mortgage Investment Crp (NASDAQ:MTGE). This group of stocks’ market values are closest to HIFR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CSII | 15 | 143251 | 4 |
| GSBD | 3 | 5266 | 0 |
| HK | 13 | 105709 | 5 |
| MTGE | 8 | 77217 | -4 |
As you can see these stocks had an average of 10 funds with bullish positions and the average amount invested in these stocks was $83 million, which is lower than the $142 million figure in HIFR’s case. Cardiovascular Systems Inc (NASDAQ:CSII) is the most popular stock in this table. On the other hand Goldman Sachs BDC Inc (NYSE:GSBD) is the least popular one with only three funds having reported long positions. InfraREIT Inc (NYSE:HIFR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Cardiovascular Systems Inc (NASDAQ:CSII) might be a better candidate to consider taking a long position in.
Disclosure: none
