Amid an overall bull market, many stocks that smart money investors were collectively bullish on 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. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Retail Properties of America Inc (NYSE:RPAI) a healthy stock for your portfolio? Money managers are becoming more confident. The number of bullish hedge fund positions rose by 7 lately. Our calculations also showed that RPAI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RPAI was in 21 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with RPAI 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.
David Harding of Winton Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the new hedge fund action regarding Retail Properties of America Inc (NYSE:RPAI).
How are hedge funds trading Retail Properties of America Inc (NYSE:RPAI)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in RPAI a year ago. 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, Renaissance Technologies has the number one position in Retail Properties of America Inc (NYSE:RPAI), worth close to $87.1 million, accounting for 0.1% of its total 13F portfolio. Coming in second is Millennium Management, led by Israel Englander, holding a $32.7 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish contain Stuart J. Zimmer’s Zimmer Partners, Ken Griffin’s Citadel Investment Group and Paul Marshall and Ian Wace’s Marshall Wace. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to Retail Properties of America Inc (NYSE:RPAI), around 1.01% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, earmarking 0.83 percent of its 13F equity portfolio to RPAI.
As industrywide interest jumped, some big names were breaking ground themselves. Marshall Wace, managed by Paul Marshall and Ian Wace, created the biggest position in Retail Properties of America Inc (NYSE:RPAI). Marshall Wace had $14.8 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also initiated a $9 million position during the quarter. The other funds with new positions in the stock are Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, Minhua Zhang’s Weld Capital Management, and David Harding’s Winton Capital Management.
Let’s now review hedge fund activity in other stocks similar to Retail Properties of America Inc (NYSE:RPAI). These stocks are Farfetch Limited (NYSE:FTCH), Crestwood Equity Partners LP (NYSE:CEQP), First Interstate Bancsystem Inc (NASDAQ:FIBK), and Cabot Corporation (NYSE:CBT). All of these stocks’ market caps resemble RPAI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FTCH | 22 | 241175 | -2 |
| CEQP | 6 | 7498 | 2 |
| FIBK | 9 | 62050 | -2 |
| CBT | 18 | 120961 | 1 |
| Average | 13.75 | 107921 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $240 million in RPAI’s case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Crestwood Equity Partners LP (NYSE:CEQP) is the least popular one with only 6 bullish hedge fund positions. Retail Properties of America Inc (NYSE:RPAI) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on RPAI as the stock returned 15.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
