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Hedge Funds Have Never Been This Bullish On City Office REIT Inc (CIO)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of City Office REIT Inc (NYSE:CIO).

City Office REIT Inc (NYSE:CIO) was in 15 hedge funds’ portfolios at the end of March. CIO has experienced an increase in support from the world’s most elite money managers of late. There were 13 hedge funds in our database with CIO holdings at the end of the previous quarter. Our calculations also showed that CIO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 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.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the fresh hedge fund action regarding City Office REIT Inc (NYSE:CIO).

How are hedge funds trading City Office REIT Inc (NYSE:CIO)?

At Q1’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CIO over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of City Office REIT Inc (NYSE:CIO), with a stake worth $24.7 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $2 million. Citadel Investment Group, Arrowstreet Capital, and Winton Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. 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 0.11% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, earmarking 0.1 percent of its 13F equity portfolio to CIO.

Now, specific money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in City Office REIT Inc (NYSE:CIO). Arrowstreet Capital had $1.1 million invested in the company at the end of the quarter. Martin Whitman’s Third Avenue Management also initiated a $0.4 million position during the quarter. The other funds with brand new CIO positions are Greg Eisner’s Engineers Gate Manager, Donald Sussman’s Paloma Partners, and Cliff Asness’s AQR Capital Management.

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 Community Health Systems, Inc. (NYSE:CYH), Gilat Satellite Networks Ltd. (NASDAQ:GILT), Mechel PAO (NYSE:MTL), and Vapotherm, Inc. (NYSE:VAPO). This group of stocks’ market caps are closest to CIO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CYH 20 159301 4
GILT 13 50128 11
MTL 3 1432 1
VAPO 12 100026 2
Average 12 77722 4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $35 million in CIO’s case. Community Health Systems, Inc. (NYSE:CYH) is the most popular stock in this table. On the other hand Mechel PAO (NYSE:MTL) is the least popular one with only 3 bullish hedge fund positions. City Office REIT Inc (NYSE:CIO) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on CIO as the stock returned 39.2% in Q2 (through June 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.