Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let's see whether Colony Capital Inc (NYSE:CLNY) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Colony Capital Inc (NYSE:CLNY) investors should be aware of an increase in hedge fund sentiment lately. CLNY was in 25 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 22 hedge funds in our database with CLNY positions at the end of the previous quarter. Our calculations also showed that CLNY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
According to most stock holders, hedge funds are viewed as worthless, outdated financial tools of years past. While there are greater than 8000 funds in operation at present, Our experts look at the bigwigs of this group, about 850 funds. These investment experts manage most of all hedge funds' total asset base, and by observing their unrivaled equity investments, Insider Monkey has uncovered numerous investment strategies that have historically outstripped the broader indices. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_221400" align="aligncenter" width="397"] Crispin Odey of Odey Asset Management Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to view the fresh hedge fund action encompassing Colony Capital Inc (NYSE:CLNY).
How have hedgies been trading Colony Capital Inc (NYSE:CLNY)?
Heading into the first quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the third quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in CLNY a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Baupost Group was the largest shareholder of Colony Capital Inc (NYSE:CLNY), with a stake worth $236 million reported as of the end of September. Trailing Baupost Group was Renaissance Technologies, which amassed a stake valued at $33 million. Odey Asset Management Group, MIC Capital Partners, and Third Avenue 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 MIC Capital Partners allocated the biggest weight to Colony Capital Inc (NYSE:CLNY), around 5.21% of its 13F portfolio. Odey Asset Management Group is also relatively very bullish on the stock, setting aside 3.11 percent of its 13F equity portfolio to CLNY.
As aggregate interest increased, some big names have jumped into Colony Capital Inc (NYSE:CLNY) headfirst. MIC Capital Partners, managed by Mubadala Investment, created the most outsized position in Colony Capital Inc (NYSE:CLNY). MIC Capital Partners had $15.2 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $2.4 million position during the quarter. The following funds were also among the new CLNY investors: Bradley Louis Radoff's Fondren Management, Mario Gabelli's GAMCO Investors, and Cliff Asness's AQR Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Colony Capital Inc (NYSE:CLNY) but similarly valued. We will take a look at Rogers Corporation (NYSE:ROG), Taylor Morrison Home Corp (NYSE:TMHC), Nelnet, Inc. (NYSE:NNI), and Zogenix, Inc. (NASDAQ:ZGNX). All of these stocks' market caps are closest to CLNY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROG,21,63127,0 TMHC,28,458004,1 NNI,14,100877,2 ZGNX,33,928215,-1 Average,24,387556,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $388 million. That figure was $354 million in CLNY's case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand Nelnet, Inc. (NYSE:NNI) is the least popular one with only 14 bullish hedge fund positions. Colony Capital Inc (NYSE:CLNY) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CLNY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CLNY were disappointed as the stock returned -58.5% during the same time period 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 many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.