Did Hedge Funds Drop The Ball On Corenergy Infrastructure Trust Inc (CORR) ?

Nina Todic

Wed, Oct 30, 2019, 6:24 PM

Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Corenergy Infrastructure Trust Inc (NYSE:CORR).

Corenergy Infrastructure Trust Inc (NYSE:CORR) shareholders have witnessed a decrease in enthusiasm from smart money of late. CORR was in 10 hedge funds' portfolios at the end of the second quarter of 2019. There were 11 hedge funds in our database with CORR positions at the end of the previous quarter. Our calculations also showed that CORR isn't among the 30 most popular stocks among hedge funds (see the video below).

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the recent hedge fund action encompassing Corenergy Infrastructure Trust Inc (NYSE:CORR).

What does smart money think about Corenergy Infrastructure Trust Inc (NYSE:CORR)?

At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CORR over the last 16 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Corenergy Infrastructure Trust Inc (NYSE:CORR), which was worth $39.2 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $3.5 million worth of shares. Moreover, Winton Capital Management, Citadel Investment Group, and Driehaus Capital were also bullish on Corenergy Infrastructure Trust Inc (NYSE:CORR), allocating a large percentage of their portfolios to this stock.

Because Corenergy Infrastructure Trust Inc (NYSE:CORR) has witnessed a decline in interest from the smart money, we can see that there was a specific group of hedge funds that slashed their positions entirely heading into Q3. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP dumped the largest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $0.3 million in stock. Matthew Tewksbury's fund, Stevens Capital Management, also dropped its stock, about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds heading into Q3.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Corenergy Infrastructure Trust Inc (NYSE:CORR) but similarly valued. We will take a look at Blue Bird Corporation (NASDAQ:BLBD), Simulations Plus, Inc. (NASDAQ:SLP), Overstock.com, Inc. (NASDAQ:OSTK), and GlycoMimetics, Inc. (NASDAQ:GLYC). All of these stocks' market caps resemble CORR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLBD,5,65736,-1 SLP,9,32263,3 OSTK,9,13457,-4 GLYC,9,46257,1 Average,8,39428,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $48 million in CORR's case. Simulations Plus, Inc. (NASDAQ:SLP) is the most popular stock in this table. On the other hand Blue Bird Corporation (NASDAQ:BLBD) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Corenergy Infrastructure Trust Inc (NYSE:CORR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CORR as the stock returned 21% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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