We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Alexandria Real Estate Equities Inc (NYSE:ARE) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Alexandria Real Estate Equities Inc (NYSE:ARE) an exceptional stock to buy now? Hedge funds are selling. The number of bullish hedge fund positions decreased by 4 lately. Our calculations also showed that ARE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). ARE was in 21 hedge funds’ portfolios at the end of December. There were 25 hedge funds in our database with ARE holdings at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the recent hedge fund action regarding Alexandria Real Estate Equities Inc (NYSE:ARE).
What have hedge funds been doing with Alexandria Real Estate Equities Inc (NYSE:ARE)?
At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in ARE a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Alexandria Real Estate Equities Inc (NYSE:ARE) was held by Zimmer Partners, which reported holding $125.2 million worth of stock at the end of September. It was followed by Millennium Management with a $56.6 million position. Other investors bullish on the company included Capital Growth Management, Adage Capital Management, and Winton Capital Management. In terms of the portfolio weights assigned to each position Capital Growth Management allocated the biggest weight to Alexandria Real Estate Equities Inc (NYSE:ARE), around 2.55% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, dishing out 1.8 percent of its 13F equity portfolio to ARE.
Due to the fact that Alexandria Real Estate Equities Inc (NYSE:ARE) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedge funds that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group cut the biggest stake of all the hedgies monitored by Insider Monkey, valued at about $25.1 million in stock. Greg Poole’s fund, Echo Street Capital Management, also cut its stock, about $13.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Alexandria Real Estate Equities Inc (NYSE:ARE). These stocks are DISH Network Corp. (NASDAQ:DISH), Garmin Ltd. (NASDAQ:GRMN), Fortinet Inc (NASDAQ:FTNT), and ZTO Express (Cayman) Inc. (NYSE:ZTO). All of these stocks’ market caps resemble ARE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DISH | 41 | 1617687 | 3 |
| GRMN | 26 | 509870 | -4 |
| FTNT | 42 | 1764894 | 1 |
| ZTO | 14 | 497928 | -6 |
| Average | 30.75 | 1097595 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $1098 million. That figure was $297 million in ARE’s case. Fortinet Inc (NASDAQ:FTNT) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 14 bullish hedge fund positions. Alexandria Real Estate Equities Inc (NYSE:ARE) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on ARE, though not to the same extent, as the stock returned -24.3% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
