Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards City Office REIT Inc (NYSE:CIO) changed during the first quarter.
Is City Office REIT Inc (NYSE:CIO) the right investment to pursue these days? The best stock pickers are getting more bullish. The number of bullish hedge fund bets moved up by 5 recently. Our calculations also showed that CIO 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
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 review the fresh hedge fund action regarding City Office REIT Inc (NYSE:CIO).
How have hedgies been trading City Office REIT Inc (NYSE:CIO)?
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 83% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in CIO a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the number one position in City Office REIT Inc (NYSE:CIO), worth close to $43.8 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Marshall Wace, managed by Paul Marshall and Ian Wace, which holds a $8.6 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism comprise Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Marathon Asset Management allocated the biggest weight to City Office REIT Inc (NYSE:CIO), around 0.65% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to CIO.
As industrywide interest jumped, specific money managers have jumped into City Office REIT Inc (NYSE:CIO) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the largest position in City Office REIT Inc (NYSE:CIO). Marshall Wace had $8.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.4 million position during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Paul Tudor Jones’s Tudor Investment Corp, and Mike Vranos’s Ellington.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as City Office REIT Inc (NYSE:CIO) but similarly valued. We will take a look at Flushing Financial Corporation (NASDAQ:FFIC), Dorian LPG Ltd (NYSE:LPG), Borr Drilling Limited (NYSE:BORR), and UMH Properties, Inc (NYSE:UMH). This group of stocks’ market values match CIO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FFIC | 12 | 43530 | 4 |
| LPG | 19 | 141816 | 9 |
| BORR | 5 | 35995 | 5 |
| UMH | 8 | 13726 | -1 |
| Average | 11 | 58767 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $74 million in CIO’s case. Dorian LPG Ltd (NYSE:LPG) is the most popular stock in this table. On the other hand Borr Drilling Limited (NYSE:BORR) is the least popular one with only 5 bullish hedge fund positions. City Office REIT Inc (NYSE:CIO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 CIO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CIO investors were disappointed as the stock returned -5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
