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Is Exantas Capital Corp. (XAN) A Good Stock To Buy?

“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Exantas Capital Corp. (NYSE:XAN) and see how it was affected.

Exantas Capital Corp. (NYSE:XAN) was in 15 hedge funds’ portfolios at the end of September. XAN shareholders have witnessed a decrease in hedge fund interest lately. There were 16 hedge funds in our database with XAN positions at the end of the previous quarter. Our calculations also showed that XAN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
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.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

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 take a peek at the recent hedge fund action surrounding Exantas Capital Corp. (NYSE:XAN).

Hedge fund activity in Exantas Capital Corp. (NYSE:XAN)

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in XAN a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, HBK Investments held the most valuable stake in Exantas Capital Corp. (NYSE:XAN), which was worth $23.5 million at the end of the third quarter. On the second spot was Indaba Capital Management which amassed $10.8 million worth of shares. Forward Management, Ancora Advisors, 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 Exantas Capital Corp. (NYSE:XAN), around 2.68% of its 13F portfolio. Indaba Capital Management is also relatively very bullish on the stock, setting aside 2.52 percent of its 13F equity portfolio to XAN.

Because Exantas Capital Corp. (NYSE:XAN) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few money managers that decided to sell off their entire stakes heading into Q4. Intriguingly, Anand Parekh’s Alyeska Investment Group cut the largest position of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $0.9 million in stock, and Bruce Kovner’s Caxton Associates was right behind this move, as the fund sold off about $0.6 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Exantas Capital Corp. (NYSE:XAN). These stocks are Camtek LTD. (NASDAQ:CAMT), TrueCar Inc (NASDAQ:TRUE), Yintech Investment Holdings Limited (NASDAQ:YIN), and Citizens & Northern Corporation (NASDAQ:CZNC). This group of stocks’ market caps resemble XAN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAMT 10 24660 0
TRUE 15 66619 0
YIN 1 362 0
CZNC 2 6741 0
Average 7 24596 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $68 million in XAN’s case. TrueCar Inc (NASDAQ:TRUE) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 1 bullish hedge fund positions. Exantas Capital Corp. (NYSE:XAN) 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. 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 XAN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on XAN were disappointed as the stock returned 5.9% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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