How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding CoreSite Realty Corp (NYSE:COR) and determine whether hedge funds had an edge regarding this stock.
CoreSite Realty Corp (NYSE:COR) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. CoreSite Realty Corp (NYSE:COR) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 23. There were 23 hedge funds in our database with COR positions at the end of the first quarter. Our calculations also showed that COR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a glance at the recent hedge fund action encompassing CoreSite Realty Corp (NYSE:COR).
What have hedge funds been doing with CoreSite Realty Corp (NYSE:COR)?
At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in COR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin's Citadel Investment Group has the largest position in CoreSite Realty Corp (NYSE:COR), worth close to $73.7 million, comprising less than 0.1%% of its total 13F portfolio. Coming in second is Renaissance Technologies, holding a $71 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish contain Ken Fisher's Fisher Asset Management, John Osterweis's Osterweis Capital Management and Dmitry Balyasny's Balyasny Asset Management. In terms of the portfolio weights assigned to each position Osterweis Capital Management allocated the biggest weight to CoreSite Realty Corp (NYSE:COR), around 1.75% of its 13F portfolio. Hill Winds Capital is also relatively very bullish on the stock, designating 1.74 percent of its 13F equity portfolio to COR.
Due to the fact that CoreSite Realty Corp (NYSE:COR) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that elected to cut their entire stakes last quarter. It's worth mentioning that David Steinberg and Eric Udoff's Marlowe Partners said goodbye to the largest position of the 750 funds watched by Insider Monkey, valued at close to $5.2 million in stock, and Bruce Kovner's Caxton Associates LP was right behind this move, as the fund said goodbye to about $0.9 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as CoreSite Realty Corp (NYSE:COR) but similarly valued. These stocks are 1Life Healthcare, Inc. (NASDAQ:ONEM), Q2 Holdings Inc (NYSE:QTWO), Science Applications International Corp (NYSE:SAIC), Haemonetics Corporation (NYSE:HAE), MyoKardia, Inc. (NASDAQ:MYOK), TCF Financial Corporation (NYSE:TCF), and Western Midstream Partners, LP (NYSE:WES). This group of stocks' market values are similar to COR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ONEM,20,345146,10 QTWO,26,290188,8 SAIC,35,448930,1 HAE,39,533278,5 MYOK,45,1360886,12 TCF,14,85082,-5 WES,11,79571,-1 Average,27.1,449012,4.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.1 hedge funds with bullish positions and the average amount invested in these stocks was $449 million. That figure was $265 million in COR's case. MyoKardia, Inc. (NASDAQ:MYOK) is the most popular stock in this table. On the other hand Western Midstream Partners, LP (NYSE:WES) is the least popular one with only 11 bullish hedge fund positions. CoreSite Realty Corp (NYSE:COR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for COR is 45.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately COR wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); COR investors were disappointed as the stock returned -0.8% in the third 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.