Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same 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 is wise to check hedge fund activity before you invest your time or your savings on a stock like Saul Centers Inc (NYSE:BFS).
Saul Centers Inc (NYSE:BFS) has seen an increase in enthusiasm from smart money recently. BFS was in 12 hedge funds’ portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with BFS holdings at the end of the previous quarter. Our calculations also showed that BFS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a peek at the latest hedge fund action encompassing Saul Centers Inc (NYSE:BFS).
How are hedge funds trading Saul Centers Inc (NYSE:BFS)?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BFS over the last 17 quarters. So, let’s check out 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 Saul Centers Inc (NYSE:BFS), with a stake worth $29.3 million reported as of the end of September. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $4.5 million. Citadel Investment Group, AQR Capital Management, and Two Sigma Advisors 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 Zebra Capital Management allocated the biggest weight to Saul Centers Inc (NYSE:BFS), around 0.39% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to BFS.
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 Saul Centers Inc (NYSE:BFS). Marshall Wace had $1.2 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Minhua Zhang’s Weld Capital Management.
Let’s go over hedge fund activity in other stocks similar to Saul Centers Inc (NYSE:BFS). These stocks are Air Transport Services Group Inc. (NASDAQ:ATSG), Materion Corporation (NYSE:MTRN), Centennial Resource Development, Inc. (NASDAQ:CDEV), and Revlon Inc (NYSE:REV). This group of stocks’ market values resemble BFS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATSG | 17 | 158207 | 2 |
| MTRN | 17 | 107442 | 2 |
| CDEV | 28 | 232973 | 11 |
| REV | 33 | 230252 | 2 |
| Average | 23.75 | 182219 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $44 million in BFS’s case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Air Transport Services Group Inc. (NASDAQ:ATSG) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Saul Centers Inc (NYSE:BFS) is even less popular than ATSG. Hedge funds dodged a bullet by taking a bearish stance towards BFS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BFS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BFS investors were disappointed as the stock returned -1.6% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
