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. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Empire State Realty Trust Inc (NYSE:ESRT).
Is Empire State Realty Trust Inc (NYSE:ESRT) the right pick for your portfolio? Hedge funds are taking an optimistic view. The number of long hedge fund bets inched up by 7 in recent months. Our calculations also showed that ESRT 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). ESRT was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 11 hedge funds in our database with ESRT holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
Ken Griffin of Citadel Investment Group
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. Now we’re going to take a glance at the key hedge fund action encompassing Empire State Realty Trust Inc (NYSE:ESRT).
How are hedge funds trading Empire State Realty Trust Inc (NYSE:ESRT)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 64% from the third quarter of 2019. By comparison, 13 hedge funds held shares or bullish call options in ESRT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Empire State Realty Trust Inc (NYSE:ESRT), with a stake worth $68.3 million reported as of the end of September. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $11.4 million. Two Sigma Advisors, Balyasny Asset Management, and Citadel Investment Group 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 Ellington allocated the biggest weight to Empire State Realty Trust Inc (NYSE:ESRT), around 0.09% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to ESRT.
Now, key money managers have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most valuable position in Empire State Realty Trust Inc (NYSE:ESRT). Marshall Wace LLP had $4.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $2.6 million position during the quarter. The following funds were also among the new ESRT investors: Donald Sussman’s Paloma Partners, Matthew Tewksbury’s Stevens Capital Management, and Mike Vranos’s Ellington.
Let’s also examine hedge fund activity in other stocks similar to Empire State Realty Trust Inc (NYSE:ESRT). These stocks are Silicon Laboratories (NASDAQ:SLAB), Science Applications International Corp (NYSE:SAIC), The Wendy’s Company (NASDAQ:WEN), and L Brands Inc (NYSE:LB). This group of stocks’ market valuations are similar to ESRT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLAB | 26 | 87548 | 4 |
| SAIC | 27 | 298988 | 1 |
| WEN | 28 | 1039723 | -9 |
| LB | 46 | 681310 | 7 |
| Average | 31.75 | 526892 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $527 million. That figure was $115 million in ESRT’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Silicon Laboratories (NASDAQ:SLAB) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Empire State Realty Trust Inc (NYSE:ESRT) is even less popular than SLAB. Hedge funds dodged a bullet by taking a bearish stance towards ESRT. 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 ESRT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ESRT investors were disappointed as the stock returned -36.6% 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.
