At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is CoreSite Realty Corp (NYSE:COR) the right investment to pursue these days? The smart money is in a bearish mood. The number of long hedge fund bets dropped by 2 lately. Our calculations also showed that COR isn't among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We're going to take a look at the new hedge fund action surrounding CoreSite Realty Corp (NYSE:COR).
What does the smart money think about CoreSite Realty Corp (NYSE:COR)?
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in COR over the last 13 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of CoreSite Realty Corp (NYSE:COR), with a stake worth $93.7 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $43.6 million. Fisher Asset Management, Two Sigma Advisors, and Alyeska Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Because CoreSite Realty Corp (NYSE:COR) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there is a sect of money managers who sold off their entire stakes by the end of the third quarter. It's worth mentioning that Ken Griffin's Citadel Investment Group sold off the biggest investment of the "upper crust" of funds followed by Insider Monkey, totaling about $2.9 million in stock. Matthew Tewksbury's fund, Stevens Capital Management, also cut its stock, about $0.6 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to CoreSite Realty Corp (NYSE:COR). These stocks are Extended Stay America Inc (NASDAQ:STAY), Home Bancshares Inc (NASDAQ:HOMB), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), and United States Cellular Corporation (NYSE:USM). This group of stocks' market values are closest to COR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STAY,30,495106,6 HOMB,14,30391,2 RARE,17,163418,6 USM,15,191634,2 Average,19,220137,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $194 million in COR's case. Extended Stay America Inc (NYSE:STAY) is the most popular stock in this table. On the other hand Home Bancshares Inc (NASDAQ:HOMB) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks CoreSite Realty Corp (NYSE:COR) is even less popular than HOMB. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.