Hedge Funds Have Never Been This Bullish On Colony Credit Real Estate, Inc. (CLNC)

The latest 13F reporting period has come and gone, and 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. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtColony Credit Real Estate, Inc. (NYSE:CLNC) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Colony Credit Real Estate, Inc. (NYSE:CLNC) was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. CLNC has seen an increase in hedge fund sentiment lately. There were 8 hedge funds in our database with CLNC holdings at the end of the previous quarter. Our calculations also showed that CLNC 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.

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 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. 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.

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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 glance at the recent hedge fund action encompassing Colony Credit Real Estate, Inc. (NYSE:CLNC).

How have hedgies been trading Colony Credit Real Estate, Inc. (NYSE:CLNC)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in CLNC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CLNC A Good Stock To Buy?

More specifically, Balyasny Asset Management was the largest shareholder of Colony Credit Real Estate, Inc. (NYSE:CLNC), with a stake worth $4.1 million reported as of the end of September. Trailing Balyasny Asset Management was Citadel Investment Group, which amassed a stake valued at $2.2 million. Renaissance Technologies, Brigade Capital, and Millennium 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 Almitas Capital allocated the biggest weight to Colony Credit Real Estate, Inc. (NYSE:CLNC), around 0.34% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to CLNC.

As one would reasonably expect, specific money managers have been driving this bullishness. Renaissance Technologies, assembled the biggest position in Colony Credit Real Estate, Inc. (NYSE:CLNC). Renaissance Technologies had $0.6 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $0.2 million investment in the stock during the quarter. The following funds were also among the new CLNC investors: David Harding’s Winton Capital Management, Ron Mass’s Almitas Capital, and Greg Eisner’s Engineers Gate Manager.

Let’s now take a look at hedge fund activity in other stocks similar to Colony Credit Real Estate, Inc. (NYSE:CLNC). We will take a look at Gladstone Commercial Corporation (NASDAQ:GOOD), Ardelyx Inc (NASDAQ:ARDX), Lantheus Holdings Inc (NASDAQ:LNTH), and Loral Space & Communications Inc (NASDAQ:LORL). This group of stocks’ market valuations resemble CLNC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GOOD 8 53096 2
ARDX 20 202923 -5
LNTH 20 77954 4
LORL 19 223665 1
Average 16.75 139410 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $9 million in CLNC’s case. Ardelyx Inc (NASDAQ:ARDX) is the most popular stock in this table. On the other hand Gladstone Commercial Corporation (NASDAQ:GOOD) is the least popular one with only 8 bullish hedge fund positions. Colony Credit Real Estate, Inc. (NYSE:CLNC) is not the least popular stock in this group but hedge fund interest is still below 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on CLNC as the stock returned 78.2% during the second quarter and outperformed the market by an even larger margin.

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