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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Essex Property Trust Inc (NYSE:ESS) makes for a good investment right now.
Is Essex Property Trust Inc (NYSE:ESS) going to take off soon? Investors who are in the know are becoming hopeful. The number of long hedge fund positions increased by 14 in recent months. Our calculations also showed that ESS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). ESS was in 33 hedge funds’ portfolios at the end of December. There were 19 hedge funds in our database with ESS holdings 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 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.
Dmitry Balyasny of Balyasny Asset Management
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. Keeping this in mind let’s take a peek at the latest hedge fund action encompassing Essex Property Trust Inc (NYSE:ESS).
What does smart money think about Essex Property Trust Inc (NYSE:ESS)?
At the end of the fourth quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 74% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ESS over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the biggest position in Essex Property Trust Inc (NYSE:ESS), worth close to $231.2 million, comprising 0.2% of its total 13F portfolio. The second largest stake is held by Balyasny Asset Management, led by Dmitry Balyasny, holding a $109.3 million position; 0.7% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions consist of Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Waterfront Capital Partners allocated the biggest weight to Essex Property Trust Inc (NYSE:ESS), around 2.91% of its 13F portfolio. Hill Winds Capital is also relatively very bullish on the stock, dishing out 2.33 percent of its 13F equity portfolio to ESS.
Now, key money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Essex Property Trust Inc (NYSE:ESS). Balyasny Asset Management had $109.3 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also made a $19.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Paul Tudor Jones’s Tudor Investment Corp, and Matthew Crandall Gilman’s Hill Winds Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Essex Property Trust Inc (NYSE:ESS). We will take a look at Rogers Communications Inc. (NYSE:RCI), First Republic Bank (NYSE:FRC), Imperial Oil Limited (NYSE:IMO), and 0. This group of stocks’ market values are closest to ESS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RCI | 13 | 313836 | -10 |
| FRC | 27 | 939192 | 7 |
| IMO | 10 | 35415 | -2 |
| TCOM | 31 | 1031564 | -8 |
| Average | 20.25 | 580002 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $580 million. That figure was $569 million in ESS’s case. 0 is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Essex Property Trust Inc (NYSE:ESS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds 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 and still beat the market by 3.2 percentage points. Unfortunately ESS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ESS were disappointed as the stock returned -25.7% during the first two and a half months of 2020 (through March 16th) 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 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.
