Hedge Funds Never Been This Bullish On Empire State Realty Trust Inc (ESRT)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Empire State Realty Trust Inc (NYSE:ESRT) and determine whether the smart money was really smart about this stock.

Empire State Realty Trust Inc (NYSE:ESRT) has seen an increase in hedge fund interest lately. Empire State Realty Trust Inc (NYSE:ESRT) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ESRT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by 58 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.

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s check out the recent hedge fund action surrounding Empire State Realty Trust Inc (NYSE:ESRT).

What does smart money think about Empire State Realty Trust Inc (NYSE:ESRT)?

At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in ESRT a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, Southeastern Asset Management held the most valuable stake in Empire State Realty Trust Inc (NYSE:ESRT), which was worth $105 million at the end of the third quarter. On the second spot was Balyasny Asset Management which amassed $25.6 million worth of shares. Renaissance Technologies, Waterfront Capital Partners, and Long Pond Capital 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 Southeastern Asset Management allocated the biggest weight to Empire State Realty Trust Inc (NYSE:ESRT), around 2.62% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, setting aside 2.01 percent of its 13F equity portfolio to ESRT.

As one would reasonably expect, key money managers were breaking ground themselves. Waterfront Capital Partners, managed by Eduardo Abush, established the largest position in Empire State Realty Trust Inc (NYSE:ESRT). Waterfront Capital Partners had $12.2 million invested in the company at the end of the quarter. John Khoury’s Long Pond Capital also initiated a $7.6 million position during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now review hedge fund activity in other stocks similar to Empire State Realty Trust Inc (NYSE:ESRT). We will take a look at Workhorse Group, Inc. (NASDAQ:WKHS), Delphi Technologies PLC (NYSE:DLPH), ICF International Inc (NASDAQ:ICFI), First Bancorp (NYSE:FBP), Mesoblast Limited (NASDAQ:MESO), AMC Networks Inc (NASDAQ:AMCX), and Alamo Group, Inc. (NYSE:ALG). This group of stocks’ market caps match ESRT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $207 million in ESRT’s case. Delphi Technologies PLC (NYSE:DLPH) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 3 bullish hedge fund positions. Empire State Realty Trust Inc (NYSE:ESRT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ESRT is 71.3. 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately ESRT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ESRT were disappointed as the stock returned -12.6% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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. See our research director’s opinion on ESRT.