Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Community Healthcare Trust Inc (NYSE:CHCT) from the perspective of those elite funds.
Is Community Healthcare Trust Inc (NYSE:CHCT) a healthy stock for your portfolio? Prominent investors are turning less bullish. The number of bullish hedge fund bets were trimmed by 1 in recent months. Our calculations also showed that CHCT isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 take a glance at the key hedge fund action regarding Community Healthcare Trust Inc (NYSE:CHCT).
How have hedgies been trading Community Healthcare Trust Inc (NYSE:CHCT)?
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the first quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in CHCT a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Cardinal Capital, managed by Amy Minella, holds the biggest position in Community Healthcare Trust Inc (NYSE:CHCT). Cardinal Capital has a $48.9 million position in the stock, comprising 1.6% of its 13F portfolio. Coming in second is Millennium Management, led by Israel Englander, holding a $14.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish contain Chuck Royce's Royce & Associates, Charles Clough's Clough Capital Partners and David M. Knott's Dorset Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified CHCT as a viable investment and initiated a position in the stock.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Community Healthcare Trust Inc (NYSE:CHCT) but similarly valued. We will take a look at Johnson Outdoors Inc. (NASDAQ:JOUT), Griffon Corporation (NYSE:GFF), Omeros Corporation (NASDAQ:OMER), and Speedway Motorsports, Inc. (NYSE:TRK). This group of stocks' market valuations match CHCT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JOUT,10,61163,-1 GFF,9,113230,2 OMER,8,98181,2 TRK,9,23289,0 Average,9,73966,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $82 million in CHCT's case. Johnson Outdoors Inc. (NASDAQ:JOUT) is the most popular stock in this table. On the other hand Omeros Corporation (NASDAQ:OMER) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Community Healthcare Trust Inc (NYSE:CHCT) is even less popular than OMER. Hedge funds clearly dropped the ball on CHCT 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 CHCT as the stock returned 14.1% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.