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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Douglas Emmett, Inc. (NYSE:DEI).
Is Douglas Emmett, Inc. (NYSE:DEI) going to take off soon? The best stock pickers are in a bearish mood. The number of bullish hedge fund positions shrunk by 4 lately. Our calculations also showed that DEI 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). DEI was in 19 hedge funds’ portfolios at the end of December. There were 23 hedge funds in our database with DEI positions at the end of the previous quarter.
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. 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 look at the latest hedge fund action regarding Douglas Emmett, Inc. (NYSE:DEI).
What have hedge funds been doing with Douglas Emmett, Inc. (NYSE:DEI)?
Heading into the first quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in DEI 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.
Among these funds, Zimmer Partners held the most valuable stake in Douglas Emmett, Inc. (NYSE:DEI), which was worth $285.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $179.8 million worth of shares. Millennium Management, Citadel Investment Group, and Winton Capital 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 Zimmer Partners allocated the biggest weight to Douglas Emmett, Inc. (NYSE:DEI), around 3.95% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, setting aside 0.52 percent of its 13F equity portfolio to DEI.
Judging by the fact that Douglas Emmett, Inc. (NYSE:DEI) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that slashed their positions entirely last quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $2.4 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dropped its stock, about $1.5 million worth. These transactions are important to note, as total hedge fund interest dropped by 4 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Douglas Emmett, Inc. (NYSE:DEI) but similarly valued. We will take a look at Apartment Investment and Management Co. (NYSE:AIV), IPG Photonics Corporation (NASDAQ:IPGP), Amarin Corporation plc (NASDAQ:AMRN), and PVH Corp (NYSE:PVH). All of these stocks’ market caps are similar to DEI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIV | 24 | 581817 | -4 |
| IPGP | 25 | 194608 | 8 |
| AMRN | 36 | 1534460 | 6 |
| PVH | 29 | 1023740 | -3 |
| Average | 28.5 | 833656 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $834 million. That figure was $631 million in DEI’s case. Amarin Corporation plc (NASDAQ:AMRN) is the most popular stock in this table. On the other hand Apartment Investment and Management Co. (NYSE:AIV) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Douglas Emmett, Inc. (NYSE:DEI) is even less popular than AIV. Hedge funds dodged a bullet by taking a bearish stance towards DEI. 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 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately DEI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DEI investors were disappointed as the stock returned -35.1% 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 Q1.
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.
