Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Essential Properties Realty Trust, Inc. (NYSE:EPRT).
Is Essential Properties Realty Trust, Inc. (NYSE:EPRT) going to take off soon? Investors who are in the know are reducing their bets on the stock. The number of long hedge fund bets were cut by 7 in recent months. Our calculations also showed that EPRT 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Clint Carlson of Carlson Capital
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. Now we’re going to view the new hedge fund action regarding Essential Properties Realty Trust, Inc. (NYSE:EPRT).
What have hedge funds been doing with Essential Properties Realty Trust, Inc. (NYSE:EPRT)?
At Q4’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -44% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in EPRT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Essential Properties Realty Trust, Inc. (NYSE:EPRT) was held by D E Shaw, which reported holding $9.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $4.6 million position. Other investors bullish on the company included Renaissance Technologies, Brasada Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Brasada Capital Management allocated the biggest weight to Essential Properties Realty Trust, Inc. (NYSE:EPRT), around 0.37% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to EPRT.
Seeing as Essential Properties Realty Trust, Inc. (NYSE:EPRT) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of funds who were dropping their positions entirely last quarter. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors sold off the biggest investment of all the hedgies watched by Insider Monkey, comprising about $22.1 million in stock. Clint Carlson’s fund, Carlson Capital, also said goodbye to its stock, about $12.2 million worth. These transactions are important to note, as total hedge fund interest was cut by 7 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Essential Properties Realty Trust, Inc. (NYSE:EPRT) but similarly valued. We will take a look at Minerals Technologies Inc (NYSE:MTX), TransAlta Corporation (NYSE:TAC), National Storage Affiliates Trust (NYSE:NSA), and Callaway Golf Company (NYSE:ELY). This group of stocks’ market caps match EPRT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTX | 14 | 103244 | -5 |
| TAC | 10 | 47175 | 3 |
| NSA | 11 | 82641 | -6 |
| ELY | 20 | 269683 | 0 |
| Average | 13.75 | 125686 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $21 million in EPRT’s case. Callaway Golf Company (NYSE:ELY) is the most popular stock in this table. On the other hand TransAlta Corporation (NYSE:TAC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Essential Properties Realty Trust, Inc. (NYSE:EPRT) is even less popular than TAC. Hedge funds dodged a bullet by taking a bearish stance towards EPRT. Our calculations showed that the top 20 most popular hedge fund stocks 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 managed to beat the market by 4.2 percentage points. Unfortunately EPRT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EPRT investors were disappointed as the stock returned -56.7% 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 so far 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.
