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 Community Healthcare Trust Inc (NYSE:CHCT)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in Community Healthcare Trust Inc (NYSE:CHCT) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Myers Industries, Inc. (NYSE:MYE), Controladora Vuela Co Avcn SA CV (NYSE:VLRS), and Century Communities, Inc (NYSE:CCS) to gather more data points.
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 market by 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the key hedge fund action encompassing Community Healthcare Trust Inc (NYSE:CHCT).
Hedge fund activity in Community Healthcare Trust Inc (NYSE:CHCT)
At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in CHCT over the last 14 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Amy Minella's Cardinal Capital has the biggest position in Community Healthcare Trust Inc (NYSE:CHCT), worth close to $36.2 million, amounting to 1.3% of its total 13F portfolio. The second largest stake is held by Millennium Management, led by Israel Englander, holding a $10.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions include Charles Clough's Clough Capital Partners, Chuck Royce's Royce & Associates and Jim Simons's Renaissance Technologies.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's also examine hedge fund activity in other stocks similar to Community Healthcare Trust Inc (NYSE:CHCT). We will take a look at Myers Industries, Inc. (NYSE:MYE), Controladora Vuela Co Avcn SA CV (NYSE:VLRS), Century Communities, Inc (NYSE:CCS), and Turning Point Brands, Inc. (NYSE:TPB). This group of stocks' market valuations are similar to CHCT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MYE,8,84723,0 VLRS,7,48641,2 CCS,15,137521,-7 TPB,10,41037,0 Average,10,77981,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $63 million in CHCT's case. Century Communities, Inc (NYSE:CCS) is the most popular stock in this table. On the other hand Controladora Vuela Co Avcn SA CV (NYSE:VLRS) is the least popular one with only 7 bullish hedge fund positions. Community Healthcare Trust Inc (NYSE:CHCT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on CHCT, though not to the same extent, as the stock returned 23.3% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.