Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about CapStar Financial Holdings, Inc. (NASDAQ:CSTR) in this article.
CapStar Financial Holdings, Inc. (NASDAQ:CSTR) has seen a decrease in activity from the world’s largest hedge funds lately. CapStar Financial Holdings, Inc. (NASDAQ:CSTR) was in 6 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 10. There were 7 hedge funds in our database with CSTR holdings at the end of June. Our calculations also showed that CSTR isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let’s view the new hedge fund action surrounding CapStar Financial Holdings, Inc. (NASDAQ:CSTR).
What have hedge funds been doing with CapStar Financial Holdings, Inc. (NASDAQ:CSTR)?
Heading into the fourth quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CSTR over the last 21 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in CapStar Financial Holdings, Inc. (NASDAQ:CSTR) was held by Private Capital Management, which reported holding $3.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $3.6 million position. Other investors bullish on the company included Arbiter Partners Capital Management, Millennium Management, and Huber Capital Management. In terms of the portfolio weights assigned to each position Private Capital Management allocated the biggest weight to CapStar Financial Holdings, Inc. (NASDAQ:CSTR), around 0.85% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to CSTR.
Seeing as CapStar Financial Holdings, Inc. (NASDAQ:CSTR) has faced declining sentiment from the smart money, logic holds that there exists a select few money managers who were dropping their positions entirely by the end of the third quarter. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $0.2 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $0.2 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CapStar Financial Holdings, Inc. (NASDAQ:CSTR) but similarly valued. We will take a look at Greenhill & Co., Inc. (NYSE:GHL), Pure Cycle Corporation (NASDAQ:PCYO), Hersha Hospitality Trust (NYSE:HT), LogicBio Therapeutics, Inc. (NASDAQ:LOGC), Fathom Holdings Inc. (NASDAQ:FTHM), Haynes International, Inc. (NASDAQ:HAYN), and Alico, Inc. (NASDAQ:ALCO). This group of stocks’ market caps are similar to CSTR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.6 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $10 million in CSTR’s case. Haynes International, Inc. (NASDAQ:HAYN) is the most popular stock in this table. On the other hand Fathom Holdings Inc. (NASDAQ:FTHM) is the least popular one with only 3 bullish hedge fund positions. CapStar Financial Holdings, Inc. (NASDAQ:CSTR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CSTR is 35.6. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on CSTR as the stock returned 31.5% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.