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Did Hedge Funds Drop The Ball On American Finance Trust, Inc. (AFIN) ?

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same 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 is wise to check hedge fund activity before you invest your time or your savings on a stock like American Finance Trust, Inc. (NASDAQ:AFIN).

Is American Finance Trust, Inc. (NASDAQ:AFIN) a great investment today? Investors who are in the know are selling. The number of bullish hedge fund bets were cut by 5 lately. Our calculations also showed that AFIN isn’t among the 30 most popular stocks among hedge funds (see the video below). AFIN was in 4 hedge funds’ portfolios at the end of June. There were 9 hedge funds in our database with AFIN positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken Fisher FISHER ASSET MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the fresh hedge fund action regarding American Finance Trust, Inc. (NASDAQ:AFIN).

What does smart money think about American Finance Trust, Inc. (NASDAQ:AFIN)?

At Q2’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -56% from the first quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in AFIN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

AFIN_oct2019

When looking at the institutional investors followed by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in American Finance Trust, Inc. (NASDAQ:AFIN). Arrowstreet Capital has a $5.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Renaissance Technologies which holds a $1.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish comprise D. E. Shaw’s D E Shaw, Ken Fisher’s Fisher Asset Management and .

Seeing as American Finance Trust, Inc. (NASDAQ:AFIN) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies who sold off their full holdings in the second quarter. It’s worth mentioning that Israel Englander’s Millennium Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $3.3 million in stock, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt. was right behind this move, as the fund sold off about $1.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 5 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as American Finance Trust, Inc. (NASDAQ:AFIN) but similarly valued. We will take a look at TriCo Bancshares (NASDAQ:TCBK), Sculptor Capital Management, Inc. (NYSE:OZM), Armada Hoffler Properties Inc (NYSE:AHH), and New York Mortgage Trust, Inc. (NASDAQ:NYMT). All of these stocks’ market caps resemble AFIN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TCBK 8 36966 -1
OZM 10 79555 2
AHH 9 66436 -2
NYMT 10 20566 4
Average 9.25 50881 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $8 million in AFIN’s case. Och-Ziff Capital Management Group LLC (NYSE:OZM) is the most popular stock in this table. On the other hand TriCo Bancshares (NASDAQ:TCBK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks American Finance Trust, Inc. (NASDAQ:AFIN) is even less popular than TCBK. Hedge funds clearly dropped the ball on AFIN as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on AFIN as the stock returned 31.1% during the third quarter and outperformed the market by an even larger margin.

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

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