Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Washington Real Estate Investment Trust (NYSE:WRE) investors should pay attention to a decrease in enthusiasm from smart money in recent months. WRE was in 5 hedge funds’ portfolios at the end of September. There were 6 hedge funds in our database with WRE holdings at the end of the previous quarter. Our calculations also showed that WRE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a gander at the fresh hedge fund action encompassing Washington Real Estate Investment Trust (NYSE:WRE).
What does smart money think about Washington Real Estate Investment Trust (NYSE:WRE)?
Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in WRE a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Washington Real Estate Investment Trust (NYSE:WRE), with a stake worth $113.8 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $1 million. Millennium Management, AQR Capital Management, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Washington Real Estate Investment Trust (NYSE:WRE), around 0.1% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, designating 0.0015 percent of its 13F equity portfolio to WRE.
Due to the fact that Washington Real Estate Investment Trust (NYSE:WRE) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedgies that decided to sell off their positions entirely last quarter. It’s worth mentioning that David E. Shaw’s D E Shaw said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $1.1 million in call options. Matthew Hulsizer’s fund, PEAK6 Capital Management, also sold off its call options, about $0.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Washington Real Estate Investment Trust (NYSE:WRE) but similarly valued. We will take a look at Stepan Company (NYSE:SCL), Invesco Mortgage Capital Inc (NYSE:IVR), Innospec Inc. (NASDAQ:IOSP), and Zai Lab Limited (NASDAQ:ZLAB). This group of stocks’ market values are similar to WRE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SCL | 14 | 61752 | 3 |
| IVR | 17 | 85348 | 6 |
| IOSP | 19 | 98572 | 6 |
| ZLAB | 21 | 264048 | 4 |
| Average | 17.75 | 127430 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $127 million. That figure was $116 million in WRE’s case. Zai Lab Limited (NASDAQ:ZLAB) is the most popular stock in this table. On the other hand Stepan Company (NYSE:SCL) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Washington Real Estate Investment Trust (NYSE:WRE) is even less popular than SCL. Hedge funds clearly dropped the ball on WRE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on WRE as the stock returned 13.6% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
