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 S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. 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 Newcastle Investment Corp. (NYSE:NCT).
Is Newcastle Investment Corp. (NYSE:NCT) the right investment to pursue these days? Hedge funds are categorically taking an optimistic view. The number of bullish hedge fund bets grew by 1 recently. NCT was in 10 hedge funds’ portfolios at the end of September. There were 9 hedge funds in our database with NCT positions at the end of the previous quarter. At the end of this article we will also compare NCT to other stocks including Fidus Investment Corp (NASDAQ:FDUS), WashingtonFirst Bankshares Inc (NASDAQ:WFBI), and Gain Capital Holdings Inc (NYSE:GCAP) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Keeping this in mind, we’re going to take a peek at the recent action surrounding Newcastle Investment Corp. (NYSE:NCT).
What does the smart money think about Newcastle Investment Corp. (NYSE:NCT)?
Heading into the fourth quarter of 2016, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NCT over the last 5 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, holds the biggest position in Newcastle Investment Corp. (NYSE:NCT). According to regulatory filings, the fund has a $2 million position in the stock. The second largest stake is held by Phill Gross and Robert Atchinson of Adage Capital Management, which oversees a $1.4 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw. We should note that none of these hedge funds are 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.
As one would reasonably expect, some big names were leading the bulls’ herd. Renaissance Technologies assembled the most outsized position in Newcastle Investment Corp. (NYSE:NCT). Arrowstreet Capital also made a $1.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group.
Let’s also examine hedge fund activity in other stocks similar to Newcastle Investment Corp. (NYSE:NCT). These stocks are Fidus Investment Corp (NASDAQ:FDUS), WashingtonFirst Bankshares Inc (NASDAQ:WFBI), Gain Capital Holdings Inc (NYSE:GCAP), and Boot Barn Holdings Inc (NYSE:BOOT). This group of stocks’ market valuations resemble NCT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FDUS | 5 | 6734 | 1 |
| WFBI | 4 | 29988 | -1 |
| GCAP | 11 | 41583 | 0 |
| BOOT | 9 | 29073 | 0 |
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $7 million in NCT’s case. Gain Capital Holdings Inc (NYSE:GCAP) is the most popular stock in this table. On the other hand WashingtonFirst Bankshares Inc (NASDAQ:WFBI) is the least popular one with only 4 bullish hedge fund positions. Newcastle Investment Corp. (NYSE:NCT) 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 GCAP might be a better candidate to consider taking a long position in.
Disclosure: None
