“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards AvalonBay Communities Inc (NYSE:AVB) and see how it was affected.
AvalonBay Communities Inc (NYSE:AVB) has experienced a decrease in support from the world’s most elite money managers recently. Our calculations also showed that AVB isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We’re going to take a look at the key hedge fund action encompassing AvalonBay Communities Inc (NYSE:AVB).
How are hedge funds trading AvalonBay Communities Inc (NYSE:AVB)?
At Q1’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AVB over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in AvalonBay Communities Inc (NYSE:AVB), which was worth $294.9 million at the end of the first quarter. On the second spot was AEW Capital Management which amassed $219.2 million worth of shares. Moreover, AQR Capital Management, Millennium Management, and Adage Capital Management were also bullish on AvalonBay Communities Inc (NYSE:AVB), allocating a large percentage of their portfolios to this stock.
Because AvalonBay Communities Inc (NYSE:AVB) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds that decided to sell off their full holdings last quarter. At the top of the heap, Sander Gerber’s Hudson Bay Capital Management dumped the biggest stake of the 700 funds watched by Insider Monkey, comprising about $4.5 million in stock, and Jeffrey Talpins’s Element Capital Management was right behind this move, as the fund dumped about $3.8 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to AvalonBay Communities Inc (NYSE:AVB). We will take a look at Advanced Micro Devices, Inc. (NASDAQ:AMD), Chunghwa Telecom Co., Ltd (NYSE:CHT), Lam Research Corporation (NASDAQ:LRCX), and TE Connectivity Ltd. (NYSE:TEL). This group of stocks’ market caps match AVB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMD | 37 | 980467 | 9 |
| CHT | 4 | 119722 | 2 |
| LRCX | 32 | 1021160 | -4 |
| TEL | 26 | 1246747 | 1 |
| Average | 24.75 | 842024 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $842 million. That figure was $851 million in AVB’s case. Advanced Micro Devices, Inc. (NASDAQ:AMD) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 4 bullish hedge fund positions. AvalonBay Communities Inc (NYSE:AVB) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on AVB, though not to the same extent, as the stock returned 0.3% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
