In this article we are going to use hedge fund sentiment as a tool and determine whether Hunt Companies Finance Trust, Inc. (NYSE:HCFT) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Hedge fund interest in Hunt Companies Finance Trust, Inc. (NYSE:HCFT) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that HCFT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 Emclaire Financial Corp (NASDAQ:EMCF), Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA), and Heritage Global Inc. (NASDAQ:HGBL) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we're going to take a gander at the new hedge fund action regarding Hunt Companies Finance Trust, Inc. (NYSE:HCFT).
What does smart money think about Hunt Companies Finance Trust, Inc. (NYSE:HCFT)?
At the end of September, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. On the other hand, there were a total of 3 hedge funds with a bullish position in HCFT a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ron Mass's Almitas Capital has the biggest position in Hunt Companies Finance Trust, Inc. (NYSE:HCFT), worth close to $0.8 million, comprising 1.1% of its total 13F portfolio. Coming in second is Ellington, led by Mike Vranos, holding a $0.8 million position; 0.3% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism include Renaissance Technologies, Ken Griffin's Citadel Investment Group and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Almitas Capital allocated the biggest weight to Hunt Companies Finance Trust, Inc. (NYSE:HCFT), around 1.14% of its 13F portfolio. Ellington is also relatively very bullish on the stock, earmarking 0.27 percent of its 13F equity portfolio to HCFT.
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 now review hedge fund activity in other stocks - not necessarily in the same industry as Hunt Companies Finance Trust, Inc. (NYSE:HCFT) but similarly valued. These stocks are Emclaire Financial Corp (NASDAQ:EMCF), Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA), Heritage Global Inc. (NASDAQ:HGBL), Aemetis, Inc (NASDAQ:AMTX), Kingsway Financial Services Inc. (NYSE:KFS), Stealth BioTherapeutics Corp (NASDAQ:MITO), and Exantas Capital Corp. (NYSE:XAN). This group of stocks' market values are closest to HCFT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EMCF,2,491,0 STSA,8,21826,-4 HGBL,1,27,1 AMTX,2,3749,-1 KFS,2,1293,0 MITO,4,533,0 XAN,9,3740,-4 Average,4,4523,-1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $2 million in HCFT's case. Exantas Capital Corp. (NYSE:XAN) is the most popular stock in this table. On the other hand Heritage Global Inc. (NASDAQ:HGBL) is the least popular one with only 1 bullish hedge fund positions. Hunt Companies Finance Trust, Inc. (NYSE:HCFT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HCFT is 60. 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. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on HCFT as the stock returned 14.3% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.