Corporate Office Properties Trust (OFC): Hedge Funds Reversing Course

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Corporate Office Properties Trust (NYSE:OFC) based on that data.

Is Corporate Office Properties Trust (NYSE:OFC) a buy here? Hedge funds are selling. The number of long hedge fund positions fell by 4 lately. Our calculations also showed that OFC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by more than 58 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 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 stocks that are in our short portfolio.

Phill Gross of Adage Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Corporate Office Properties Trust (NYSE:OFC).

How are hedge funds trading Corporate Office Properties Trust (NYSE:OFC)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in OFC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Corporate Office Properties Trust (NYSE:OFC) was held by Renaissance Technologies, which reported holding $60.5 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $27.3 million position. Other investors bullish on the company included V3 Capital, Fisher Asset Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position V3 Capital allocated the biggest weight to Corporate Office Properties Trust (NYSE:OFC), around 4.23% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, earmarking 0.79 percent of its 13F equity portfolio to OFC.

Since Corporate Office Properties Trust (NYSE:OFC) has witnessed a decline in interest from the smart money, we can see that there is a sect of funds that decided to sell off their entire stakes last quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dumped the largest investment of the 750 funds monitored by Insider Monkey, worth close to $0.9 million in stock. Donald Sussman’s fund, Paloma Partners, also dumped its stock, about $0.7 million worth. These moves are interesting, as total hedge fund interest dropped by 4 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Corporate Office Properties Trust (NYSE:OFC) but similarly valued. We will take a look at Manchester United PLC (NYSE:MANU), TreeHouse Foods Inc. (NYSE:THS), Halozyme Therapeutics, Inc. (NASDAQ:HALO), and ChemoCentryx Inc (NASDAQ:CCXI). This group of stocks’ market caps match OFC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $242 million. That figure was $158 million in OFC’s case. ChemoCentryx Inc (NASDAQ:CCXI) is the most popular stock in this table. On the other hand Manchester United PLC (NYSE:MANU) is the least popular one with only 8 bullish hedge fund positions. Corporate Office Properties Trust (NYSE:OFC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately OFC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OFC investors were disappointed as the stock returned 15.5% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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