Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Prologis Inc (NYSE:PLD).
Is Prologis Inc (NYSE:PLD) a bargain? The best stock pickers are betting on the stock. The number of bullish hedge fund bets improved by 3 in recent months. Our calculations also showed that PLD 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
David Harding of Winton Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the key hedge fund action encompassing Prologis Inc (NYSE:PLD).
Hedge fund activity in Prologis Inc (NYSE:PLD)
At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PLD over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Prologis Inc (NYSE:PLD) was held by AQR Capital Management, which reported holding $78.7 million worth of stock at the end of September. It was followed by Adage Capital Management with a $65.4 million position. Other investors bullish on the company included Citadel Investment Group, Winton Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Bourgeon Capital allocated the biggest weight to Prologis Inc (NYSE:PLD), around 1.61% of its portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.57 percent of its 13F equity portfolio to PLD.
As aggregate interest increased, some big names have jumped into Prologis Inc (NYSE:PLD) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Prologis Inc (NYSE:PLD). Balyasny Asset Management had $7.8 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also made a $3.5 million investment in the stock during the quarter. The other funds with brand new PLD positions are Paul Tudor Jones’s Tudor Investment Corp, Matthew Tewksbury’s Stevens Capital Management, and Jeffrey Talpins’s Element Capital Management.
Let’s go over hedge fund activity in other stocks similar to Prologis Inc (NYSE:PLD). We will take a look at Vodafone Group Plc (NASDAQ:VOD), DuPont de Nemours, Inc. (NYSE:DD), Deere & Company (NYSE:DE), and Brookfield Asset Management Inc. (NYSE:BAM). All of these stocks’ market caps are closest to PLD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VOD | 19 | 685397 | 8 |
| DD | 47 | 1502453 | 5 |
| DE | 40 | 1818266 | 0 |
| BAM | 31 | 1142775 | 9 |
| Average | 34.25 | 1287223 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1287 million. That figure was $361 million in PLD’s case. DuPont de Nemours, Inc. (NYSE:DD) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 19 bullish hedge fund positions. Prologis Inc (NYSE:PLD) is not the least popular stock in this group but hedge fund interest is still below average. 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 PLD, though not to the same extent, as the stock returned 7.4% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
