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After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Ares Commercial Real Estate Corp (NYSE:ACRE).
Is Ares Commercial Real Estate Corp (NYSE:ACRE) an exceptional investment right now? Investors who are in the know are turning less bullish. The number of long hedge fund positions shrunk by 3 lately. 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 below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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Israel Englander of Millennium Management[/caption]
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. We're going to check out the latest hedge fund action surrounding Ares Commercial Real Estate Corp (NYSE:ACRE).
How are hedge funds trading Ares Commercial Real Estate Corp (NYSE:ACRE)?
At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ACRE over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Israel Englander's Millennium Management has the most valuable position in Ares Commercial Real Estate Corp (NYSE:ACRE), worth close to $7.5 million, corresponding to less than 0.1%% of its total 13F portfolio. On Millennium Management's heels is David Harding of Winton Capital Management, with a $4.1 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish include John Overdeck and David Siegel's Two Sigma Advisors, Ken Griffin's Citadel Investment Group and Renaissance Technologies. In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to Ares Commercial Real Estate Corp (NYSE:ACRE), around 0.18% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.17 percent of its 13F equity portfolio to ACRE.
Seeing as Ares Commercial Real Estate Corp (NYSE:ACRE) has experienced bearish sentiment from the smart money, we can see that there was a specific group of fund managers who were dropping their entire stakes last quarter. Interestingly, Peter Algert and Kevin Coldiron's Algert Coldiron Investors dropped the largest investment of the 750 funds followed by Insider Monkey, comprising about $0.3 million in stock. Bruce Kovner's fund, Caxton Associates, also sold off its stock, about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds last quarter.
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. These stocks are Domo Inc. (NASDAQ:DOMO), Diamond S Shipping Inc. (NYSE:DSSI), Penn Virginia Corporation (NASDAQ:PVAC), and SI-BONE, Inc. (NASDAQ:SIBN). This group of stocks' market valuations are similar to ACRE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DOMO,14,94401,0 DSSI,15,138795,4 PVAC,16,183867,-1 SIBN,7,38943,-2 Average,13,114002,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $21 million in ACRE's case. Penn Virginia Corporation (NASDAQ:PVAC) is the most popular stock in this table. On the other hand SI-BONE, Inc. (NASDAQ:SIBN) is the least popular one with only 7 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. This is a slightly negative signal and 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 ACRE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ACRE investors were disappointed as the stock returned 2.7% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.