Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Is Retail Properties of America Inc (NYSE:RPAI) a cheap investment right now? The smart money is taking an optimistic view. The number of long hedge fund bets went up by 1 in recent months. Our calculations also showed that RPAI isn’t among the 30 most popular stocks among hedge funds. RPAI was in 15 hedge funds’ portfolios at the end of December. There were 14 hedge funds in our database with RPAI holdings at the end of the previous quarter.
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s go over the key hedge fund action surrounding Retail Properties of America Inc (NYSE:RPAI).
How are hedge funds trading Retail Properties of America Inc (NYSE:RPAI)?
Heading into the first quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RPAI over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AEW Capital Management held the most valuable stake in Retail Properties of America Inc (NYSE:RPAI), which was worth $70.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $61 million worth of shares. Moreover, Waterfront Capital Partners, Millennium Management, and Two Sigma Advisors were also bullish on Retail Properties of America Inc (NYSE:RPAI), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, initiated the most outsized position in Retail Properties of America Inc (NYSE:RPAI). Millennium Management had $9.2 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $4.7 million investment in the stock during the quarter. The following funds were also among the new RPAI investors: Minhua Zhang’s Weld Capital Management and Matthew Tewksbury’s Stevens Capital Management.
Let’s check out hedge fund activity in other stocks similar to Retail Properties of America Inc (NYSE:RPAI). We will take a look at Meredith Corporation (NYSE:MDP), Genworth Financial Inc (NYSE:GNW), Boyd Gaming Corporation (NYSE:BYD), and Genomic Health, Inc. (NASDAQ:GHDX). This group of stocks’ market values are closest to RPAI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDP | 12 | 312287 | -5 |
| GNW | 22 | 70350 | 0 |
| BYD | 30 | 461140 | -3 |
| GHDX | 24 | 1022530 | 6 |
| Average | 22 | 466577 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $467 million. That figure was $175 million in RPAI’s case. Boyd Gaming Corporation (NYSE:BYD) is the most popular stock in this table. On the other hand Meredith Corporation (NYSE:MDP) is the least popular one with only 12 bullish hedge fund positions. Retail Properties of America Inc (NYSE:RPAI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately RPAI wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); RPAI investors were disappointed as the stock returned 10.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
