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CubeSmart (CUBE): Are Hedge Funds Right About This Stock?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards CubeSmart (NYSE:CUBE) at the end of the second quarter and determine whether the smart money was really smart about this stock.

CubeSmart (NYSE:CUBE) investors should be aware of an increase in activity from the world’s largest hedge funds of late. CubeSmart (NYSE:CUBE) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistics is 27. There were 18 hedge funds in our database with CUBE holdings at the end of March. Our calculations also showed that CUBE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing CubeSmart (NYSE:CUBE).

What have hedge funds been doing with CubeSmart (NYSE:CUBE)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in CUBE a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is CUBE A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Ric Dillon’s Diamond Hill Capital has the biggest position in CubeSmart (NYSE:CUBE), worth close to $114 million, amounting to 0.7% of its total 13F portfolio. Sitting at the No. 2 spot is Echo Street Capital Management, led by Greg Poole, holding a $31 million position; 0.4% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism include Dmitry Balyasny’s Balyasny Asset Management, Israel Englander’s Millennium Management and Ian Simm’s Impax Asset Management. In terms of the portfolio weights assigned to each position Hill Winds Capital allocated the biggest weight to CubeSmart (NYSE:CUBE), around 6.01% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, dishing out 0.67 percent of its 13F equity portfolio to CUBE.

As one would reasonably expect, some big names were breaking ground themselves. Hill Winds Capital, managed by Matthew Crandall Gilman, assembled the largest position in CubeSmart (NYSE:CUBE). Hill Winds Capital had $4.2 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $1.2 million position during the quarter. The following funds were also among the new CUBE investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Donald Sussman’s Paloma Partners, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CubeSmart (NYSE:CUBE) but similarly valued. These stocks are Enel Chile S.A. (NYSE:ENIC), Yamana Gold Inc. (NYSE:AUY), Vedanta Ltd (NYSE:VEDL), Hess Midstream LP (NYSE:HESM), Tech Data Corp (NASDAQ:TECD), IAA, Inc. (NYSE:IAA), and BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ). This group of stocks’ market caps are similar to CUBE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENIC 5 15818 -3
AUY 18 407399 4
VEDL 9 46209 -2
HESM 6 11545 1
TECD 17 307359 -22
IAA 43 1326469 4
BJ 31 246030 5
Average 18.4 337261 -1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.4 hedge funds with bullish positions and the average amount invested in these stocks was $337 million. That figure was $211 million in CUBE’s case. IAA, Inc. (NYSE:IAA) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 5 bullish hedge fund positions. CubeSmart (NYSE:CUBE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CUBE is 61.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on CUBE as the stock returned 18.3% during Q3 (through September 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.