Were Hedge Funds Right About CBL & Associates Properties, Inc. (CBL)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of CBL & Associates Properties, Inc. (NYSE:CBL) based on that data and determine whether they were really smart about the stock.

Is CBL & Associates Properties, Inc. (NYSE:CBL) a buy, sell, or hold? The smart money was taking a bearish view. The number of bullish hedge fund positions were cut by 2 in recent months. Our calculations also showed that CBL 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.

Christian Leone of Luxor Capital Group

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 look at the recent hedge fund action encompassing CBL & Associates Properties, Inc. (NYSE:CBL).

What have hedge funds been doing with CBL & Associates Properties, Inc. (NYSE:CBL)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CBL over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Contrarius Investment Management held the most valuable stake in CBL & Associates Properties, Inc. (NYSE:CBL), which was worth $1.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1.1 million worth of shares. Luxor Capital Group, ZWEIG DIMENNA PARTNERS, and CQS Cayman LP 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 Contrarius Investment Management allocated the biggest weight to CBL & Associates Properties, Inc. (NYSE:CBL), around 0.25% of its 13F portfolio. Iszo Capital is also relatively very bullish on the stock, earmarking 0.14 percent of its 13F equity portfolio to CBL.

Seeing as CBL & Associates Properties, Inc. (NYSE:CBL) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few funds that elected to cut their full holdings last quarter. Intriguingly, Dan Kamensky’s Marble Ridge Capital sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $1.8 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dumped its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to CBL & Associates Properties, Inc. (NYSE:CBL). We will take a look at Forward Pharma A/S (NASDAQ:FWP), Educational Development Corporation (NASDAQ:EDUC), Dynagas LNG Partners LP (NYSE:DLNG), and Bank of the James Financial Group, Inc. (NASDAQ:BOTJ). This group of stocks’ market values are similar to CBL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FWP 2 7357 0
EDUC 2 1244 1
DLNG 1 11 0
BOTJ 1 3673 0
Average 1.5 3071 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.5 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $5 million in CBL’s case. Forward Pharma A/S (NASDAQ:FWP) is the most popular stock in this table. On the other hand Dynagas LNG Partners LP (NYSE:DLNG) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks CBL & Associates Properties, Inc. (NYSE:CBL) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CBL as the stock returned 35% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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