At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Innovative Industrial Properties, Inc. (NYSE:IIPR) was in 10 hedge funds’ portfolios at the end of June. IIPR shareholders have witnessed an increase in enthusiasm from smart money recently. There were 9 hedge funds in our database with IIPR positions at the end of the previous quarter. Our calculations also showed that IIPR isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the latest hedge fund action encompassing Innovative Industrial Properties, Inc. (NYSE:IIPR).
How are hedge funds trading Innovative Industrial Properties, Inc. (NYSE:IIPR)?
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IIPR over the last 16 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, D. E. Shaw’s D E Shaw has the largest position in Innovative Industrial Properties, Inc. (NYSE:IIPR), worth close to $12 million, accounting for less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which holds a $7.1 million call position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions encompass John Overdeck and David Siegel’s Two Sigma Advisors, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital and D. E. Shaw’s D E Shaw.
Consequently, key hedge funds have been driving this bullishness. D E Shaw, managed by D. E. Shaw, initiated the largest position in Innovative Industrial Properties, Inc. (NYSE:IIPR). D E Shaw had $12 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $7.1 million investment in the stock during the quarter. The following funds were also among the new IIPR investors: D. E. Shaw’s D E Shaw, Louis Navellier’s Navellier & Associates, and Minhua Zhang’s Weld Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Innovative Industrial Properties, Inc. (NYSE:IIPR) but similarly valued. These stocks are 1st Source Corporation (NASDAQ:SRCE), American Finance Trust, Inc. (NASDAQ:AFIN), Lakeland Financial Corporation (NASDAQ:LKFN), and Essential Properties Realty Trust, Inc. (NYSE:EPRT). This group of stocks’ market valuations match IIPR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SRCE | 6 | 28585 | -3 |
| AFIN | 4 | 7811 | -5 |
| LKFN | 11 | 19717 | 0 |
| EPRT | 15 | 111447 | 2 |
| Average | 9 | 41890 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $25 million in IIPR’s case. Essential Properties Realty Trust, Inc. (NYSE:EPRT) is the most popular stock in this table. On the other hand American Finance Trust, Inc. (NASDAQ:AFIN) is the least popular one with only 4 bullish hedge fund positions. Innovative Industrial Properties, Inc. (NYSE:IIPR) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IIPR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IIPR were disappointed as the stock returned -24.6% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
