In this article we are going to use hedge fund sentiment as a tool and determine whether Ares Commercial Real Estate Corp (NYSE:ACRE) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is ACRE a good stock to buy now? Ares Commercial Real Estate Corp (NYSE:ACRE) was in 9 hedge funds' portfolios at the end of September. The all time high for this statistics is 13. ACRE shareholders have witnessed a decrease in enthusiasm from smart money recently. There were 10 hedge funds in our database with ACRE positions at the end of the second quarter. Our calculations also showed that ACRE isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Minhua Zhang of Weld Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to check out the recent hedge fund action encompassing Ares Commercial Real Estate Corp (NYSE:ACRE).
Do Hedge Funds Think ACRE Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ACRE over the last 21 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Steamboat Capital Partners held the most valuable stake in Ares Commercial Real Estate Corp (NYSE:ACRE), which was worth $15.1 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $3 million worth of shares. Millennium Management, Winton Capital Management, and Renaissance Technologies 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 Steamboat Capital Partners allocated the biggest weight to Ares Commercial Real Estate Corp (NYSE:ACRE), around 2.46% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to ACRE.
Due to the fact that Ares Commercial Real Estate Corp (NYSE:ACRE) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of fund managers who were dropping their full holdings heading into Q4. Interestingly, James Morrow's Callodine Capital Management cut the largest stake of all the hedgies tracked by Insider Monkey, worth close to $4.6 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund sold off about $1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to Ares Commercial Real Estate Corp (NYSE:ACRE). We will take a look at Noodles & Co (NASDAQ:NDLS), Oxford Immunotec Global PLC (NASDAQ:OXFD), GTT Communications Inc (NYSE:GTT), Innate Pharma S.A. (NASDAQ:IPHA), Griffin Industrial Realty, Inc. (NASDAQ:GRIF), Gilat Satellite Networks Ltd. (NASDAQ:GILT), and Gladstone Investment Corporation (NASDAQ:GAIN). All of these stocks' market caps are closest to ACRE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NDLS,19,67028,1 OXFD,20,136176,2 GTT,9,87069,0 IPHA,2,1248,-1 GRIF,4,38978,0 GILT,7,29466,-1 GAIN,3,1980,-2 Average,9.1,51706,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.1 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $25 million in ACRE's case. Oxford Immunotec Global PLC (NASDAQ:OXFD) is the most popular stock in this table. On the other hand Innate Pharma S.A. (NASDAQ:IPHA) is the least popular one with only 2 bullish hedge fund positions. Ares Commercial Real Estate Corp (NYSE:ACRE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ACRE is 44.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on ACRE as the stock returned 29.3% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.