Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in CyrusOne Inc (NASDAQ:CONE)? The smart money sentiment can provide an answer to this question.
CyrusOne Inc (NASDAQ:CONE) was in 18 hedge funds' portfolios at the end of June. CONE investors should pay attention to an increase in support from the world's most elite money managers of late. There were 17 hedge funds in our database with CONE positions at the end of the previous quarter. Our calculations also showed that CONE isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to view the latest hedge fund action encompassing CyrusOne Inc (NASDAQ:CONE).
How are hedge funds trading CyrusOne Inc (NASDAQ:CONE)?
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CONE over the last 16 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, AEW Capital Management held the most valuable stake in CyrusOne Inc (NASDAQ:CONE), which was worth $42.1 million at the end of the second quarter. On the second spot was Fisher Asset Management which amassed $31.7 million worth of shares. Moreover, Citadel Investment Group, Echo Street Capital Management, and Marlowe Partners were also bullish on CyrusOne Inc (NASDAQ:CONE), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Islet Management, managed by Joseph Samuels, established the most outsized position in CyrusOne Inc (NASDAQ:CONE). Islet Management had $6.9 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also made a $3 million investment in the stock during the quarter. The other funds with brand new CONE positions are Matthew Hulsizer's PEAK6 Capital Management, Michael Gelband's ExodusPoint Capital, and Andrew Sandler's Sandler Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as CyrusOne Inc (NASDAQ:CONE) but similarly valued. These stocks are Signature Bank (NASDAQ:SBNY), Steel Dynamics, Inc. (NASDAQ:STLD), East West Bancorp, Inc. (NASDAQ:EWBC), and Assurant, Inc. (NYSE:AIZ). This group of stocks' market values match CONE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBNY,29,513611,-7 STLD,31,591407,4 EWBC,28,378757,-1 AIZ,29,515543,-10 Average,29.25,499830,-3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $500 million. That figure was $173 million in CONE's case. Steel Dynamics, Inc. (NASDAQ:STLD) is the most popular stock in this table. On the other hand East West Bancorp, Inc. (NASDAQ:EWBC) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks CyrusOne Inc (NASDAQ:CONE) is even less popular than EWBC. Hedge funds clearly dropped the ball on CONE as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CONE as the stock returned 37.9% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.