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Where Do Hedge Funds Stand On KKR Real Estate Finance Trust Inc. (KREF)?

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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 KKR Real Estate Finance Trust Inc. (NYSE:KREF)? The smart money sentiment can provide an answer to this question.

KKR Real Estate Finance Trust Inc. (NYSE:KREF) has experienced a decrease in support from the world's most elite money managers of late. KKR Real Estate Finance Trust Inc. (NYSE:KREF) was in 6 hedge funds' portfolios at the end of September. The all time high for this statistics is 11. 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 for a quick look at the top 5 stocks).

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.

TUDOR INVESTMENT CORP
TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

With all of this in mind let's review the new hedge fund action surrounding KKR Real Estate Finance Trust Inc. (NYSE:KREF).

How are hedge funds trading KKR Real Estate Finance Trust Inc. (NYSE:KREF)?

At the end of September, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the second quarter of 2020. By comparison, 11 hedge funds held shares or bullish call options in KREF a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Winton Capital Management was the largest shareholder of KKR Real Estate Finance Trust Inc. (NYSE:KREF), with a stake worth $5.7 million reported as of the end of September. Trailing Winton Capital Management was Steamboat Capital Partners, which amassed a stake valued at $1.5 million. Tudor Investment Corp, GAMCO Investors, and Citadel Investment Group 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 Steamboat Capital Partners allocated the biggest weight to KKR Real Estate Finance Trust Inc. (NYSE:KREF), around 0.25% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.19 percent of its 13F equity portfolio to KREF.

Due to the fact that KKR Real Estate Finance Trust Inc. (NYSE:KREF) has experienced declining sentiment from hedge fund managers, it's easy to see that there was a specific group of money managers who sold off their full holdings heading into Q4. At the top of the heap, Israel Englander's Millennium Management dumped the biggest investment of the "upper crust" of funds followed by Insider Monkey, comprising about $2.9 million in stock. James Morrow's fund, Callodine Capital Management, also said goodbye to its stock, about $1.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds heading into Q4.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as KKR Real Estate Finance Trust Inc. (NYSE:KREF) but similarly valued. These stocks are Trinseo S.A. (NYSE:TSE), Sally Beauty Holdings, Inc. (NYSE:SBH), Signet Jewelers Limited (NYSE:SIG), Kite Realty Group Trust (NYSE:KRG), Myriad Genetics, Inc. (NASDAQ:MYGN), Usa Compression Partners LP (NYSE:USAC), and BioXcel Therapeutics, Inc. (NASDAQ:BTAI). This group of stocks' market valuations match KREF's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSE,13,31760,-5 SBH,27,134912,1 SIG,22,379553,6 KRG,7,38413,-3 MYGN,19,190093,-2 USAC,4,6819,1 BTAI,11,75492,-2 Average,14.7,122435,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $9 million in KREF's case. Sally Beauty Holdings, Inc. (NYSE:SBH) is the most popular stock in this table. On the other hand Usa Compression Partners LP (NYSE:USAC) is the least popular one with only 4 bullish hedge fund positions. KKR Real Estate Finance Trust Inc. (NYSE:KREF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KREF is 23.7. 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. A small number of hedge funds were also right about betting on KREF as the stock returned 11.6% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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