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Were Hedge Funds Right About KKR Real Estate Finance Trust (KREF)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards KKR Real Estate Finance Trust Inc. (NYSE:KREF).

KKR Real Estate Finance Trust Inc. (NYSE:KREF) has seen a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that KREF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

CAPITAL GROWTH MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the new hedge fund action encompassing KKR Real Estate Finance Trust Inc. (NYSE:KREF).

How are hedge funds trading KKR Real Estate Finance Trust Inc. (NYSE:KREF)?

At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the third quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in KREF a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is KREF A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Millennium Management, managed by Israel Englander, holds the largest position in KKR Real Estate Finance Trust Inc. (NYSE:KREF). Millennium Management has a $12.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Callodine Capital Management, led by James Morrow, holding a $9.2 million position; 3.6% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions consist of David Harding’s Winton Capital Management, D. E. Shaw’s D E Shaw and Renaissance Technologies. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to KKR Real Estate Finance Trust Inc. (NYSE:KREF), around 3.64% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.1 percent of its 13F equity portfolio to KREF.

Seeing as KKR Real Estate Finance Trust Inc. (NYSE:KREF) has witnessed declining sentiment from the smart money, it’s safe to say that there exists a select few funds that slashed their entire stakes heading into Q4. Interestingly, Ken Heebner’s Capital Growth Management dumped the largest stake of the 750 funds followed by Insider Monkey, comprising close to $26.5 million in stock, and Ran Pang’s Quantamental Technologies was right behind this move, as the fund cut about $0.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as KKR Real Estate Finance Trust Inc. (NYSE:KREF) but similarly valued. We will take a look at Denny’s Corporation (NASDAQ:DENN), Re/Max Holdings Inc (NYSE:RMAX), IGM Biosciences, Inc. (NASDAQ:IGMS), and Oi SA (NYSE:OIBR). All of these stocks’ market caps match KREF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DENN 21 158298 0
RMAX 17 79279 7
IGMS 12 319601 1
OIBR 12 191854 1
Average 15.5 187258 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $187 million. That figure was $39 million in KREF’s case. Denny’s Corporation (NASDAQ:DENN) is the most popular stock in this table. On the other hand IGM Biosciences, Inc. (NASDAQ:IGMS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks KKR Real Estate Finance Trust Inc. (NYSE:KREF) is even less popular than IGMS. Hedge funds dodged a bullet by taking a bearish stance towards KREF. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately KREF wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); KREF investors were disappointed as the stock returned -20.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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