Hedge Funds Aren’t Crazy About AvalonBay Communities Inc (AVB) Anymore

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards AvalonBay Communities Inc (NYSE:AVB) to find out whether there were any major changes in hedge funds’ views.

AvalonBay Communities Inc (NYSE:AVB) investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. AvalonBay Communities Inc (NYSE:AVB) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistic is 40. There were 40 hedge funds in our database with AVB positions at the end of the first quarter. Our calculations also showed that AVB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Ken Heebner of Capital Growth Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to go over the key hedge fund action regarding AvalonBay Communities Inc (NYSE:AVB).

Do Hedge Funds Think AVB Is A Good Stock To Buy Now?

At Q2’s end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -35% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AVB over the last 24 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in AvalonBay Communities Inc (NYSE:AVB) was held by Balyasny Asset Management, which reported holding $98.3 million worth of stock at the end of June. It was followed by Millennium Management with a $54.1 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and AQR Capital Management. In terms of the portfolio weights assigned to each position Solel Partners allocated the biggest weight to AvalonBay Communities Inc (NYSE:AVB), around 5.41% of its 13F portfolio. Land & Buildings Investment Management is also relatively very bullish on the stock, earmarking 5.32 percent of its 13F equity portfolio to AVB.

Due to the fact that AvalonBay Communities Inc (NYSE:AVB) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds who sold off their positions entirely heading into Q3. It’s worth mentioning that John M. Angelo and Michael L. Gordon’s Angelo Gordon & Co sold off the biggest investment of the 750 funds tracked by Insider Monkey, worth about $58.9 million in stock, and Mark T. Gallogly’s Centerbridge Partners was right behind this move, as the fund cut about $35.1 million worth. These moves are interesting, as total hedge fund interest fell by 14 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as AvalonBay Communities Inc (NYSE:AVB) but similarly valued. These stocks are Arthur J. Gallagher & Co. (NYSE:AJG), Ameriprise Financial, Inc. (NYSE:AMP), EPAM Systems Inc (NYSE:EPAM), Best Buy Co., Inc. (NYSE:BBY), Equity Residential (NYSE:EQR), CBRE Group, Inc. (NYSE:CBRE), and Energy Transfer L.P. (NYSE:ET). This group of stocks’ market valuations match AVB’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $1029 million. That figure was $428 million in AVB’s case. Arthur J. Gallagher & Co. (NYSE:AJG) is the most popular stock in this table. On the other hand Best Buy Co., Inc. (NYSE:BBY) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks AvalonBay Communities Inc (NYSE:AVB) is even less popular than BBY. Our overall hedge fund sentiment score for AVB is 10.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on AVB as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. A small number of hedge funds were also right about betting on AVB as the stock returned 11.3% since Q2 (through October 15th) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.