Is istar Inc (NYSE:STAR) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
istar Inc (NYSE:STAR) investors should pay attention to an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that STAR 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Ric Dillon of Diamond Hill 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 fresh hedge fund action surrounding istar Inc (NYSE:STAR).
What have hedge funds been doing with istar Inc (NYSE:STAR)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 180% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards STAR over the last 17 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in istar Inc (NYSE:STAR) was held by Diamond Hill Capital, which reported holding $47.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $18.8 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Winton Capital Management. In terms of the portfolio weights assigned to each position Diamond Hill Capital allocated the biggest weight to istar Inc (NYSE:STAR), around 0.25% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.04 percent of its 13F equity portfolio to STAR.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Winton Capital Management, managed by David Harding, created the biggest position in istar Inc (NYSE:STAR). Winton Capital Management had $3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.9 million position during the quarter. The following funds were also among the new STAR investors: Paul Marshall and Ian Wace’s Marshall Wace, Benjamin A. Smith’s Laurion Capital Management, and David E. Shaw’s D E Shaw.
Let’s go over hedge fund activity in other stocks similar to istar Inc (NYSE:STAR). These stocks are Central Pacific Financial Corp. (NYSE:CPF), Goldman Sachs BDC, Inc. (NYSE:GSBD), Nanometrics Incorporated (NASDAQ:NANO), and WisdomTree Investments, Inc. (NASDAQ:WETF). All of these stocks’ market caps match STAR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPF | 15 | 74851 | 3 |
| GSBD | 2 | 3362 | 1 |
| NANO | 17 | 103646 | 0 |
| WETF | 17 | 56235 | 5 |
| Average | 12.75 | 59524 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $91 million in STAR’s case. Nanometrics Incorporated (NASDAQ:NANO) 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 2 bullish hedge fund positions. istar Inc (NYSE:STAR) 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. 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 STAR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on STAR were disappointed as the stock returned 0.3% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
