We are still in an overall bull market and many stocks that smart money investors were piling into 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. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Empire State Realty Trust Inc (NYSE:ESRT).
Is Empire State Realty Trust Inc (NYSE:ESRT) ready to rally soon? Hedge funds are selling. The number of long hedge fund bets fell by 3 recently. Our calculations also showed that ESRT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ESRT was in 9 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with ESRT positions at the end of the previous quarter.
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.
Ken Griffin of Citadel Investment Group
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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s review the fresh hedge fund action surrounding Empire State Realty Trust Inc (NYSE:ESRT).
What have hedge funds been doing with Empire State Realty Trust Inc (NYSE:ESRT)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ESRT over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Empire State Realty Trust Inc (NYSE:ESRT) was held by Renaissance Technologies, which reported holding $68.8 million worth of stock at the end of September. It was followed by GLG Partners with a $11.3 million position. Other investors bullish on the company included Balyasny Asset Management, Two Sigma Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Empire State Realty Trust Inc (NYSE:ESRT), around 0.07% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to ESRT.
Because Empire State Realty Trust Inc (NYSE:ESRT) has faced a decline in interest from the smart money, logic holds that there was a specific group of money managers that elected to cut their full holdings by the end of the third quarter. Intriguingly, Jeffrey Furber’s AEW Capital Management sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $9.8 million in stock. Daniel Johnson’s fund, Gillson Capital, also sold off its stock, about $3.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Empire State Realty Trust Inc (NYSE:ESRT) but similarly valued. These stocks are Liberty Global plc (NASDAQ:LBTYA), Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), Avalara, Inc. (NYSE:AVLR), and Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC). All of these stocks’ market caps resemble ESRT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LBTYA | 27 | 1291972 | 0 |
| HZNP | 32 | 1379525 | -2 |
| AVLR | 44 | 1102762 | 4 |
| TKC | 5 | 5614 | -2 |
| Average | 27 | 944968 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $945 million. That figure was $103 million in ESRT’s case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 5 bullish hedge fund positions. Empire State Realty Trust Inc (NYSE:ESRT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately ESRT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ESRT investors were disappointed as the stock returned -2.2% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
