Here is What Hedge Funds Think About CubeSmart (CUBE)

Abigail Fisher

Tue, Jun 11, 2019, 6:20 PM

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards CubeSmart (NYSE:CUBE).

Is CubeSmart (NYSE:CUBE) a bargain? The smart money is in a pessimistic mood. The number of long hedge fund positions dropped by 2 lately. Our calculations also showed that CUBE isn't among the 30 most popular stocks among hedge funds.

To most stock holders, hedge funds are viewed as worthless, old investment vehicles of years past. While there are over 8000 funds with their doors open at the moment, Our experts hone in on the leaders of this club, around 750 funds. These investment experts direct the lion's share of the smart money's total asset base, and by observing their unrivaled equity investments, Insider Monkey has figured out a number of investment strategies that have historically outpaced the market. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

We're going to take a gander at the recent hedge fund action encompassing CubeSmart (NYSE:CUBE).

How have hedgies been trading CubeSmart (NYSE:CUBE)?

At Q1's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in CUBE a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Ric Dillon's Diamond Hill Capital has the biggest position in CubeSmart (NYSE:CUBE), worth close to $107.2 million, amounting to 0.6% of its total 13F portfolio. The second most bullish fund manager is AEW Capital Management, led by Jeffrey Furber, holding a $101.2 million position; the fund has 2.9% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions contain Greg Poole's Echo Street Capital Management, Clint Carlson's Carlson Capital and Israel Englander's Millennium Management.

Because CubeSmart (NYSE:CUBE) has faced falling interest from hedge fund managers, it's safe to say that there exists a select few money managers that slashed their entire stakes last quarter. At the top of the heap, Jeffrey Pierce's Snow Park Capital Partners said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $1.1 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund dumped about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as CubeSmart (NYSE:CUBE) but similarly valued. These stocks are Royal Gold, Inc (NASDAQ:RGLD), Axalta Coating Systems Ltd (NYSE:AXTA), Flowserve Corporation (NYSE:FLS), and Catalent Inc (NYSE:CTLT). All of these stocks' market caps are closest to CUBE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RGLD,17,67145,2 AXTA,43,1962919,8 FLS,20,235664,4 CTLT,15,145810,-4 Average,23.75,602885,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $603 million. That figure was $393 million in CUBE's case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand Catalent Inc (NYSE:CTLT) is the least popular one with only 15 bullish hedge fund positions. CubeSmart (NYSE:CUBE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on CUBE as the stock returned 4.1% during the same time frame and outperformed the market by an even larger margin.

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

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