Hedge Funds Are Dumping HCP, Inc. (HCP): Do They Know Something You Don’t?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

HCP, Inc. (NYSE:HCP) has experienced a decrease in hedge fund sentiment recently. 14 hedge funds that we track were long the stock on September 30. There were 16 hedge funds in our database with HCP positions 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 Molson Coors Brewing Company (NYSE:TAP), Ingersoll-Rand PLC (NYSE:IR), and American Airlines Group Inc (NASDAQ:AAL) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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How are hedge funds trading HCP, Inc. (NYSE:HCP)?

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a 13% dip from one quarter earlier as hedge fund ownership slides again. The graph below displays the number of hedge funds with bullish position in HCP over the last 5 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Jim Simons’ Renaissance Technologies has the number one position in HCP, Inc. (NYSE:HCP), worth close to $52.3 million. Sitting at the No. 2 spot is Adage Capital Management, led by Phill Gross and Robert Atchinson, which holds a $25.4 million position. Other members of the smart money with similar optimism contain Glenn Russell Dubin’s Highbridge Capital Management, Cliff Asness’ AQR Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Due to the fact that HCP, Inc. (NYSE:HCP) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers who were dropping their full holdings by the end of the third quarter. Intriguingly, Greg Poole’s Echo Street Capital Management said goodbye to the largest stake of the 700 funds followed by Insider Monkey, comprising an estimated $8.5 million in stock. David E. Shaw’s D E Shaw, also dropped its stock, about $7.8 million worth.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as HCP, Inc. (NYSE:HCP) but similarly valued. We will take a look at Molson Coors Brewing Company (NYSE:TAP), Ingersoll-Rand PLC (NYSE:IR), American Airlines Group Inc (NASDAQ:AAL), and Rogers Communications Inc. (USA) (NYSE:RCI). All of these stocks’ market caps are similar to HCP’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 $1.74 billion. That figure was $154 million in HCP’s case. Molson Coors Brewing Company (NYSE:TAP) is the most popular stock in this table. On the other hand Rogers Communications Inc. (USA) (NYSE:RCI) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks HCP, Inc. (NYSE:HCP) is only as popular as RCI. 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.

Disclosure: None