Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Stag Industrial Inc (NYSE:STAG).
Stag Industrial Inc (NYSE:STAG) shareholders have witnessed an increase in hedge fund sentiment of late. STAG was in 15 hedge funds’ portfolios at the end of March. There were 12 hedge funds in our database with STAG positions at the end of the previous quarter. Our calculations also showed that STAG isn’t among the 30 most popular stocks among hedge funds.
According to most market participants, hedge funds are perceived as unimportant, old financial tools of the past. While there are over 8000 funds trading at the moment, We choose to focus on the masters of this club, about 750 funds. These investment experts manage the lion’s share of the smart money’s total capital, and by keeping track of their highest performing investments, Insider Monkey has formulated various investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by around 5 percentage points per year since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
Let’s take a peek at the recent hedge fund action surrounding Stag Industrial Inc (NYSE:STAG).
How have hedgies been trading Stag Industrial Inc (NYSE:STAG)?
At Q1’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STAG over the last 15 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the largest position in Stag Industrial Inc (NYSE:STAG). Zimmer Partners has a $133.4 million position in the stock, comprising 1.6% of its 13F portfolio. The second most bullish fund manager is Clint Carlson of Carlson Capital, with a $11.2 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Jim Simons’s Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Dmitry Balyasny’s Balyasny Asset Management.
As industrywide interest jumped, some big names have jumped into Stag Industrial Inc (NYSE:STAG) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the largest position in Stag Industrial Inc (NYSE:STAG). Balyasny Asset Management had $8.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $1 million position during the quarter. The other funds with new positions in the stock are Cliff Asness’s AQR Capital Management, Michael Gelband’s ExodusPoint Capital, and Bruce Kovner’s Caxton Associates LP.
Let’s also examine hedge fund activity in other stocks similar to Stag Industrial Inc (NYSE:STAG). These stocks are Valvoline Inc. (NYSE:VVV), Embraer SA (NYSE:ERJ), Colfax Corporation (NYSE:CFX), and LHC Group, Inc. (NASDAQ:LHCG). This group of stocks’ market caps are similar to STAG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VVV | 19 | 306405 | 1 |
| ERJ | 8 | 83463 | -2 |
| CFX | 32 | 667763 | 5 |
| LHCG | 23 | 109472 | -4 |
| Average | 20.5 | 291776 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $186 million in STAG’s case. Colfax Corporation (NYSE:CFX) is the most popular stock in this table. On the other hand Embraer SA (NYSE:ERJ) is the least popular one with only 8 bullish hedge fund positions. Stag Industrial Inc (NYSE:STAG) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on STAG as the stock returned 6.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
