Hedge Funds Souring On Realty Income Corporation (O)

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 821 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 March 31st, a week after the market trough. In this article we look at what those investors think of Realty Income Corporation (NYSE:O).

Realty Income Corporation (NYSE:O) was in 25 hedge funds’ portfolios at the end of March. O has seen a decrease in enthusiasm from smart money recently. There were 26 hedge funds in our database with O positions at the end of the previous quarter. Our calculations also showed that O isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by more than 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. 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.

Dmitry Balyasny of Balyasny Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the recent hedge fund action surrounding Realty Income Corporation (NYSE:O).

What have hedge funds been doing with Realty Income Corporation (NYSE:O)?

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in O over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the most valuable position in Realty Income Corporation (NYSE:O). Zimmer Partners has a $62.3 million position in the stock, comprising 1.4% of its 13F portfolio. On Zimmer Partners’s heels is John Overdeck and David Siegel of Two Sigma Advisors, with a $33.7 million position; 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions contain D. E. Shaw’s D E Shaw, Dmitry Balyasny’s Balyasny Asset Management and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Hill Winds Capital allocated the biggest weight to Realty Income Corporation (NYSE:O), around 8.78% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, earmarking 3.84 percent of its 13F equity portfolio to O.

Due to the fact that Realty Income Corporation (NYSE:O) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers who sold off their entire stakes in the first quarter. It’s worth mentioning that Daniel S. Och’s OZ Management dumped the biggest stake of all the hedgies monitored by Insider Monkey, worth about $3.6 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also sold off its stock, about $3.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Realty Income Corporation (NYSE:O). We will take a look at New Oriental Education & Technology Group Inc. (NYSE:EDU), Coca-Cola European Partners plc (NYSE:CCEP), Snap Inc. (NYSE:SNAP), and Tencent Music Entertainment Group (NYSE:TME). This group of stocks’ market valuations are similar to O’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $782 million. That figure was $225 million in O’s case. Snap Inc. (NYSE:SNAP) is the most popular stock in this table. On the other hand Coca-Cola European Partners plc (NYSE:CCEP) is the least popular one with only 22 bullish hedge fund positions. Realty Income Corporation (NYSE:O) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on O, though not to the same extent, as the stock returned 25.7% during the second quarter and outperformed the market.

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