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Carolina Trust BancShares, Inc. (CART): Are Hedge Funds Right About This Stock?

Nina Todic

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Carolina Trust BancShares, Inc. (NASDAQ:CART).

Carolina Trust BancShares, Inc. (NASDAQ:CART) has seen an increase in support from the world's most elite money managers of late. Our calculations also showed that CART 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.

5 Most Popular Stocks Among Hedge Funds

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' 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.

[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]

TUDOR INVESTMENT CORP

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's take a look at the new hedge fund action surrounding Carolina Trust BancShares, Inc. (NASDAQ:CART).

Hedge fund activity in Carolina Trust BancShares, Inc. (NASDAQ:CART)

Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 400% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CART over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paul Tudor Jones's Tudor Investment Corp has the most valuable position in Carolina Trust BancShares, Inc. (NASDAQ:CART), worth close to $3.5 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Mendon Capital Advisors, led by Anton Schutz, holding a $1.6 million position; 0.3% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish encompass James Dondero's Highland Capital Management, Renaissance Technologies and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital. In terms of the portfolio weights assigned to each position Mendon Capital Advisors allocated the biggest weight to Carolina Trust BancShares, Inc. (NASDAQ:CART), around 0.26% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, designating 0.12 percent of its 13F equity portfolio to CART.

As one would reasonably expect, some big names were breaking ground themselves. Tudor Investment Corp, managed by Paul Tudor Jones, established the largest position in Carolina Trust BancShares, Inc. (NASDAQ:CART). Tudor Investment Corp had $3.5 million invested in the company at the end of the quarter. Anton Schutz's Mendon Capital Advisors also initiated a $1.6 million position during the quarter. The other funds with brand new CART positions are James Dondero's Highland Capital Management, Renaissance Technologies, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Carolina Trust BancShares, Inc. (NASDAQ:CART) but similarly valued. These stocks are Ur-Energy Inc. (NYSE:URG), China XD Plastics Company Limited (NASDAQ:CXDC), Itamar Medical Ltd. (NASDAQ:ITMR), and Magal Security Systems Ltd. (NASDAQ:MAGS). All of these stocks' market caps match CART's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position URG,1,3204,-2 CXDC,1,1227,-1 ITMR,2,4307,0 MAGS,3,2695,0 Average,1.75,2858,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.75 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $6 million in CART's case. Magal Security Systems Ltd. (NASDAQ:MAGS) is the most popular stock in this table. On the other hand Ur-Energy Inc. (NYSE:URG) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Carolina Trust BancShares, Inc. (NASDAQ:CART) is more popular among hedge funds. 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. Hedge funds were also right about betting on CART as the stock returned 19.6% during the first two months of Q4 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.

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

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