We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Eastgroup Properties Inc (NYSE:EGP)? The smart money sentiment can provide an answer to this question.
Is Eastgroup Properties Inc (NYSE:EGP) a cheap stock to buy now? Hedge funds are in a pessimistic mood. The number of bullish hedge fund bets shrunk by 2 in recent months. Our calculations also showed that EGP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
Paul Tudor Jones of Tudor Investment Corp
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 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 take a peek at the recent hedge fund action encompassing Eastgroup Properties Inc (NYSE:EGP).
How have hedgies been trading Eastgroup Properties Inc (NYSE:EGP)?
At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the third quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in EGP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Eastgroup Properties Inc (NYSE:EGP) was held by Balyasny Asset Management, which reported holding $28.2 million worth of stock at the end of September. It was followed by Winton Capital Management with a $16.7 million position. Other investors bullish on the company included Millennium Management, AQR Capital Management, and Tudor Investment Corp. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to Eastgroup Properties Inc (NYSE:EGP), around 0.23% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, setting aside 0.17 percent of its 13F equity portfolio to EGP.
Seeing as Eastgroup Properties Inc (NYSE:EGP) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of fund managers who were dropping their entire stakes heading into Q4. Interestingly, Ken Griffin’s Citadel Investment Group dropped the biggest stake of all the hedgies monitored by Insider Monkey, totaling close to $5.3 million in stock, and Mika Toikka’s AlphaCrest Capital Management was right behind this move, as the fund cut about $1.3 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 2 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Eastgroup Properties Inc (NYSE:EGP). These stocks are Tech Data Corp (NASDAQ:TECD), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), Mirati Therapeutics, Inc. (NASDAQ:MRTX), and Highwoods Properties Inc (NYSE:HIW). All of these stocks’ market caps match EGP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TECD | 34 | 645025 | 11 |
| TKC | 7 | 49348 | 1 |
| MRTX | 32 | 1719243 | -3 |
| HIW | 16 | 188536 | -8 |
| Average | 22.25 | 650538 | 0.25 |
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 $651 million. That figure was $65 million in EGP’s case. Tech Data Corp (NASDAQ:TECD) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 7 bullish hedge fund positions. Eastgroup Properties Inc (NYSE:EGP) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately EGP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EGP investors were disappointed as the stock returned -23% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
