We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Hudson Pacific Properties Inc (NYSE:HPP).
Hudson Pacific Properties Inc (NYSE:HPP) has seen a decrease in hedge fund interest recently. Our calculations also showed that HPP 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).
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 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 S&P 500 ETFs by 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 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.
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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 go over the new hedge fund action regarding Hudson Pacific Properties Inc (NYSE:HPP).
Hedge fund activity in Hudson Pacific Properties Inc (NYSE:HPP)
Heading into the first quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HPP over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Long Pond Capital, managed by John Khoury, holds the biggest position in Hudson Pacific Properties Inc (NYSE:HPP). Long Pond Capital has a $110 million position in the stock, comprising 2.8% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, holding a $59.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism include Eduardo Abush’s Waterfront Capital Partners, Israel Englander’s Millennium Management and Jonathan Litt’s Land & Buildings Investment Management. In terms of the portfolio weights assigned to each position Waterfront Capital Partners allocated the biggest weight to Hudson Pacific Properties Inc (NYSE:HPP), around 4.07% of its 13F portfolio. Land & Buildings Investment Management is also relatively very bullish on the stock, designating 3.46 percent of its 13F equity portfolio to HPP.
Due to the fact that Hudson Pacific Properties Inc (NYSE:HPP) has witnessed declining sentiment from the smart money, logic holds that there exists a select few money managers who were dropping their full holdings by the end of the third quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the biggest stake of the 750 funds watched by Insider Monkey, comprising an estimated $4.8 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund said goodbye to about $4.2 million worth. These moves are important to note, as total hedge fund interest dropped by 8 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Hudson Pacific Properties Inc (NYSE:HPP). We will take a look at Haemonetics Corporation (NYSE:HAE), Stericycle Inc (NASDAQ:SRCL), Quanta Services Inc (NYSE:PWR), and Zynga Inc (NASDAQ:ZNGA). All of these stocks’ market caps resemble HPP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HAE | 33 | 596381 | 8 |
| SRCL | 24 | 832122 | 4 |
| PWR | 44 | 958990 | 12 |
| ZNGA | 48 | 953368 | 8 |
| Average | 37.25 | 835215 | 8 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.25 hedge funds with bullish positions and the average amount invested in these stocks was $835 million. That figure was $276 million in HPP’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Stericycle Inc (NASDAQ:SRCL) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Hudson Pacific Properties Inc (NYSE:HPP) is even less popular than SRCL. Hedge funds dodged a bullet by taking a bearish stance towards HPP. 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 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately HPP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HPP investors were disappointed as the stock returned -42.1% 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.
