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We at Insider Monkey have gone over 752 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of KKR Real Estate Finance Trust Inc. (NYSE:KREF) based on that data.
Is KKR Real Estate Finance Trust Inc. (NYSE:KREF) a great investment today? Investors who are in the know are reducing their bets on the stock. The number of long hedge fund positions fell by 1 lately. Our calculations also showed that KREF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). KREF was in 8 hedge funds' portfolios at the end of September. There were 9 hedge funds in our database with KREF holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
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David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's go over the recent hedge fund action surrounding KKR Real Estate Finance Trust Inc. (NYSE:KREF).
What have hedge funds been doing with KKR Real Estate Finance Trust Inc. (NYSE:KREF)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KREF over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Capital Growth Management was the largest shareholder of KKR Real Estate Finance Trust Inc. (NYSE:KREF), with a stake worth $26.5 million reported as of the end of September. Trailing Capital Growth Management was Millennium Management, which amassed a stake valued at $6.6 million. Winton Capital Management, D E Shaw, and Balyasny Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Capital Growth Management allocated the biggest weight to KKR Real Estate Finance Trust Inc. (NYSE:KREF), around 2.03% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to KREF.
Since KKR Real Estate Finance Trust Inc. (NYSE:KREF) has experienced bearish sentiment from the smart money, it's safe to say that there exists a select few hedge funds who were dropping their full holdings last quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling an estimated $1.4 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund dropped about $0.7 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as KKR Real Estate Finance Trust Inc. (NYSE:KREF) but similarly valued. We will take a look at NextPoint Residential Trust Inc (NYSE:NXRT), OFG Bancorp (NYSE:OFG), Canadian Solar Inc. (NASDAQ:CSIQ), and Gossamer Bio, Inc. (NASDAQ:GOSS). This group of stocks' market valuations are closest to KREF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NXRT,10,203374,0 OFG,14,65351,-4 CSIQ,17,115434,4 GOSS,9,161966,-2 Average,12.5,136531,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $52 million in KREF's case. Canadian Solar Inc. (NASDAQ:CSIQ) is the most popular stock in this table. On the other hand Gossamer Bio, Inc. (NASDAQ:GOSS) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks KKR Real Estate Finance Trust Inc. (NYSE:KREF) is even less popular than GOSS. Hedge funds dodged a bullet by taking a bearish stance towards KREF. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately KREF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KREF investors were disappointed as the stock returned 3.4% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.