Hedge Funds Are Buying Health Care REIT, Inc. (HCN)

The third-quarter stock market correction has turned out to resemble the situation observed during the Asian financial crisis of 1997. The two relatively short-lived corrections occurred at a time with stable interest rates, falling commodity markets, with strong-performing technology and healthcare sectors, and struggling energy sector. Similarly, the two corrections followed long periods without a correction, which had to come sooner or later and it did. Even so, several prominent hedge fund investors publicly asserted their bearish view on the current state of the U.S. equity markets, suggesting that they significantly cut their exposure to equities during the latest quarter. Having said that, it would be worthwhile to take a look at the hedge fund sentiment on Health Care REIT, Inc. (NYSE:HCN) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Health Care REIT, Inc. investors should be aware of an increase in hedge fund sentiment recently. HCN was in 24 hedge funds’ portfolios at the end of the third quarter of 2015. There were 23 hedge funds in our database with HCN holdings at the end of the previous quarter. 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 Norfolk Southern Corp. (NYSE:NSC), Perrigo Company (NYSE:PRGO), and General Growth Properties Inc (NYSE:GGP) to gather more data points.

If you’d ask most market participants, hedge funds are assumed to be unimportant, old investment vehicles of yesteryear. While there are over 8000 funds in operation at present, We look at the crème de la crème of this club, approximately 700 funds. These investment experts control the majority of the smart money’s total asset base, and by monitoring their first-class picks, Insider Monkey has come up with many investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Keeping this in mind, let’s analyze the recent action regarding Health Care REIT, Inc. (NYSE:HCN).

How are hedge funds trading Health Care REIT, Inc. (NYSE:HCN)?

At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, up by 4% from the previous quarter. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jeffrey Furber’s AEW Capital Management has the largest position in Health Care REIT, Inc. (NYSE:HCN), worth close to $173.2 million, accounting for 4.1% of its total 13F portfolio. Sitting at the No. 2 spot is Jim Simons of Renaissance Technologies, with a $149.4 million stake; the fund has 0.4% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions consist of Charles Clough’s Clough Capital Partners, Phill Gross and Robert Atchinson’s Adage Capital Management and Israel Englander’s Millennium Management.

As aggregate interest increased, some big names have been driving this bullishness. AEW Capital Management, managed by Jeffrey Furber, established the largest position in Health Care REIT, Inc. (NYSE:HCN), worth an estimated $173.2 million at the end of the quarter. Jim Simons’s Renaissance Technologies has also established his $149.4 million investment in the stock during the quarter. The following funds were also among the new HCN investors: Charles Clough’s Clough Capital Partners, Phill Gross and Robert Atchinson’s Adage Capital Management, and Israel Englander’s Millennium Management.

Let’s go over hedge fund activity in other stocks similar to Health Care REIT, Inc. (NYSE:HCN). We will take a look at Norfolk Southern Corp. (NYSE:NSC), Perrigo Company (NYSE:PRGO), General Growth Properties Inc (NYSE:GGP), and Franklin Resources, Inc. (NYSE:BEN). This group of stocks’ market caps are closest to HCN’s market cap.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1.79 billion. That figure was just $581 million in HCN’s case. Perrigo Company (NYSE:PRGO) is the most popular stock in this table, while General Growth Properties Inc (NYSE:GGP) is at the other end of the specter with only 27 bullish hedge fund positions. Compared to these stocks Health Care REIT, Inc. (NYSE:HCN) is even less popular than GGP. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.