Hedge Funds Never Been Less Bullish On Essential Properties Realty Trust, Inc. (EPRT)

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Essential Properties Realty Trust, Inc. (NYSE:EPRT) in this article.

Is Essential Properties Realty Trust, Inc. (NYSE:EPRT) worth your attention right now? Investors who are in the know were in a pessimistic mood. The number of long hedge fund bets were cut by 2 in recent months. Essential Properties Realty Trust, Inc. (NYSE:EPRT) was in 5 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 23. Our calculations also showed that EPRT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 7 hedge funds in our database with EPRT holdings at the end of December.

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 115 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.

Mark McMeans of Brasada Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $27 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Essential Properties Realty Trust, Inc. (NYSE:EPRT).

Do Hedge Funds Think EPRT Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in EPRT 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.

More specifically, Millennium Management was the largest shareholder of Essential Properties Realty Trust, Inc. (NYSE:EPRT), with a stake worth $3.3 million reported as of the end of March. Trailing Millennium Management was Hill Winds Capital, which amassed a stake valued at $2.7 million. Brasada Capital Management, Arrowstreet Capital, and PEAK6 Capital Management 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 Hill Winds Capital allocated the biggest weight to Essential Properties Realty Trust, Inc. (NYSE:EPRT), around 1.47% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, setting aside 0.18 percent of its 13F equity portfolio to EPRT.

Due to the fact that Essential Properties Realty Trust, Inc. (NYSE:EPRT) has witnessed falling interest from the smart money, logic holds that there were a few hedge funds who were dropping their positions entirely by the end of the first quarter. It’s worth mentioning that Clint Carlson’s Carlson Capital cut the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising about $19.7 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also cut its stock, about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Essential Properties Realty Trust, Inc. (NYSE:EPRT) but similarly valued. We will take a look at Shenandoah Telecommunications Company (NASDAQ:SHEN), Pactiv Evergreen Inc. (NASDAQ:PTVE), Tri Pointe Group Inc (NYSE:TPH), Herman Miller, Inc. (NASDAQ:MLHR), WesBanco, Inc. (NASDAQ:WSBC), MYT Netherlands Parent B.V. (NYSE:MYTE), and Magellan Health Inc (NASDAQ:MGLN). This group of stocks’ market caps resemble EPRT’s market cap.

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As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $8 million in EPRT’s case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand Shenandoah Telecommunications Company (NASDAQ:SHEN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Essential Properties Realty Trust, Inc. (NYSE:EPRT) is even less popular than SHEN. Our overall hedge fund sentiment score for EPRT is 9.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on EPRT as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. A small number of hedge funds were also right about betting on EPRT as the stock returned 19.5% since Q1 (through June 18th) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.