It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month 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 isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Tanger Factory Outlet Centers Inc. (NYSE:SKT).
Is Tanger Factory Outlet Centers Inc. (NYSE:SKT) an attractive investment today? Money managers are buying. The number of long hedge fund positions rose by 4 in recent months. Our calculations also showed that SKT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SKT was in 18 hedge funds’ portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with SKT holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ric Dillon of Diamond Hill Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the new hedge fund action regarding Tanger Factory Outlet Centers Inc. (NYSE:SKT).
What have hedge funds been doing with Tanger Factory Outlet Centers Inc. (NYSE:SKT)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SKT over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in Tanger Factory Outlet Centers Inc. (NYSE:SKT), worth close to $23.4 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $18.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions consist of Israel Englander’s Millennium Management, Dmitry Balyasny’s Balyasny Asset Management and Ric Dillon’s Diamond Hill Capital. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Tanger Factory Outlet Centers Inc. (NYSE:SKT), around 0.18% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, designating 0.12 percent of its 13F equity portfolio to SKT.
As aggregate interest increased, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in Tanger Factory Outlet Centers Inc. (NYSE:SKT). Arrowstreet Capital had $18.1 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $2.1 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang’s Weld Capital Management, Paul Tudor Jones’s Tudor Investment Corp, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Tanger Factory Outlet Centers Inc. (NYSE:SKT) but similarly valued. These stocks are AAR Corp. (NYSE:AIR), Comstock Resources Inc (NYSE:CRK), National Research Corporation (NASDAQ:NRC), and Supernus Pharmaceuticals Inc (NASDAQ:SUPN). This group of stocks’ market valuations are closest to SKT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIR | 18 | 138846 | -4 |
| CRK | 5 | 3783 | 1 |
| NRC | 9 | 49867 | 0 |
| SUPN | 16 | 88106 | 0 |
| Average | 12 | 70151 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $80 million in SKT’s case. AAR Corp. (NYSE:AIR) is the most popular stock in this table. On the other hand Comstock Resources Inc (NYSE:CRK) is the least popular one with only 5 bullish hedge fund positions. Tanger Factory Outlet Centers Inc. (NYSE:SKT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 SKT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SKT were disappointed as the stock returned 0.4% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
