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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Vornado Realty Trust (NYSE:VNO)? The smart money sentiment can provide an answer to this question.
Vornado Realty Trust (NYSE:VNO) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. VNO was in 31 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 37 hedge funds in our database with VNO positions at the end of the previous quarter. Our calculations also showed that VNO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Paul Singer of Elliott 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. Now let’s analyze the recent hedge fund action surrounding Vornado Realty Trust (NYSE:VNO).
What does smart money think about Vornado Realty Trust (NYSE:VNO)?
At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the third quarter of 2019. By comparison, 23 hedge funds held shares or bullish call options in VNO a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Long Pond Capital was the largest shareholder of Vornado Realty Trust (NYSE:VNO), with a stake worth $271.8 million reported as of the end of September. Trailing Long Pond Capital was Elliott Management, which amassed a stake valued at $114.4 million. Millennium Management, Third Avenue Management, and AQR 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 Long Pond Capital allocated the biggest weight to Vornado Realty Trust (NYSE:VNO), around 6.94% of its 13F portfolio. Hill Winds Capital is also relatively very bullish on the stock, dishing out 5.25 percent of its 13F equity portfolio to VNO.
Judging by the fact that Vornado Realty Trust (NYSE:VNO) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedgies that decided to sell off their entire stakes last quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest investment of all the hedgies watched by Insider Monkey, totaling close to $27.2 million in stock, and J. Alan Reid, Jr.’s Forward Management was right behind this move, as the fund cut about $9.1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 6 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Vornado Realty Trust (NYSE:VNO). We will take a look at Teledyne Technologies Incorporated (NYSE:TDY), Centrais Eletricas Brasileiras SA (NYSE:EBR), DENTSPLY SIRONA Inc. (NASDAQ:XRAY), and Lamb Weston Holdings, Inc. (NYSE:LW). This group of stocks’ market values are similar to VNO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TDY | 24 | 546627 | -7 |
| EBR | 7 | 21678 | 2 |
| XRAY | 28 | 1468190 | -2 |
| LW | 32 | 381958 | -3 |
| Average | 22.75 | 604613 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $605 million. That figure was $689 million in VNO’s case. Lamb Weston Holdings, Inc. (NYSE:LW) is the most popular stock in this table. On the other hand Centrais Eletricas Brasileiras SA (NYSE:EBR) is the least popular one with only 7 bullish hedge fund positions. Vornado Realty Trust (NYSE:VNO) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately VNO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VNO were disappointed as the stock returned -49.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.
