Looking for high-potential stocks? 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 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ 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 Ares Commercial Real Estate Corp (NYSE:ACRE).
Ares Commercial Real Estate Corp (NYSE:ACRE) was in 10 hedge funds’ portfolios at the end of September. ACRE shareholders have witnessed an increase in hedge fund sentiment recently. There were 8 hedge funds in our database with ACRE positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Barrett Business Services, Inc. (NASDAQ:BBSI), Clifton Savings Bancorp, Inc. (NASDAQ:CSBK), and Independent Bank Corporation(MI) (NASDAQ:IBCP) to gather more data points.
Follow Ares Commercial Real Estate Corp (NYSE:ACRE)
Follow Ares Commercial Real Estate Corp (NYSE:ACRE)
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
How are hedge funds trading Ares Commercial Real Estate Corp (NYSE:ACRE)?
Heading into the fourth quarter of 2016, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, up by 25% from the second quarter of 2016. On the other hand, there were a total of 9 hedge funds with a bullish position in ACRE at the beginning of this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Renaissance Technologies, one of the largest hedge funds in the world has the number one position in Ares Commercial Real Estate Corp (NYSE:ACRE), worth close to $3.2 million On Renaissance Technologies’ heels is Millennium Management, which holds a $1.8 million position. Some other members of the smart money that hold long positions include Amy Minella’s Cardinal Capital, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As one would reasonably expect, some big names have been driving this bullishness. Millennium Management established the most valuable position in Ares Commercial Real Estate Corp (NYSE:ACRE). Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.6 million position during the quarter. The only other fund with a brand new ACRE position is Ken Griffin’s Citadel Investment Group.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ares Commercial Real Estate Corp (NYSE:ACRE) but similarly valued. We will take a look at Barrett Business Services, Inc. (NASDAQ:BBSI), Clifton Savings Bancorp, Inc. (NASDAQ:CSBK), Independent Bank Corporation(MI) (NASDAQ:IBCP), and Clearside Biomedical Inc (NASDAQ:CLSD). This group of stocks’ market valuations are similar to ACRE’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $10 million in ACRE’s case. Clifton Savings Bancorp, Inc. (NASDAQ:CSBK) is the most popular stock in this table. On the other hand Barrett Business Services, Inc. (NASDAQ:BBSI) is the least popular one with only 4 bullish hedge fund positions. Ares Commercial Real Estate Corp (NYSE:ACRE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CSBK might be a better candidate to consider taking a long position in.