How Has Smart Money Been Trading QTS Realty Trust Inc (QTS)?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 5.2% over the 12-month period ending October 30, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey (as of September 2014) generated a return of 9.5% over the same time span, with 63% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in QTS Realty Trust Inc (NYSE:QTS).

Is QTS Realty Trust Inc (NYSE:QTS) a sound stock to buy now? Hedge funds are getting less optimistic. The number of bullish hedge fund bets decreased by six in recent months. At the end of this article we will also compare QTS to other stocks including Endurance International Group Hldgs Inc (NASDAQ:EIGI), Pinnacle Financial Partners (NASDAQ:PNFP), and Silicon Laboratories (NASDAQ:SLAB) to get a better sense of its popularity.

In the financial world there are numerous formulas market participants put to use to grade their stock investments. Some of the most underrated formulas are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the top money managers can outpace their index-focused peers by a solid margin (see the details here).

With all of this in mind, let’s analyze the recent action encompassing QTS Realty Trust Inc (NYSE:QTS).

What does the smart money think about QTS Realty Trust Inc (NYSE:QTS)?

Heading into Q4, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from one quarter earlier. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the biggest position in QTS Realty Trust Inc (NYSE:QTS), worth close to $18.1 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by Jim Simons of Renaissance Technologies, with a $12.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions encompass Richard Driehaus’s Driehaus Capital, Cliff Asness’s AQR Capital Management and Chao Ku’s Nine Chapters Capital Management.

Due to the fact that QTS Realty Trust Inc (NYSE:QTS) has experienced a bearish sentiment from the smart money, logic holds that there lies a certain “tier” of money managers who were dropping their full holdings in the third quarter. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $14.3 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $4.2 million worth of shares. These moves are important to note, as aggregate hedge fund interest fell by 6 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as QTS Realty Trust Inc (NYSE:QTS) but similarly valued. We will take a look at Endurance International Group Hldgs Inc (NASDAQ:EIGI), Pinnacle Financial Partners (NASDAQ:PNFP), Silicon Laboratories (NASDAQ:SLAB), and CVB Financial Corp. (NASDAQ:CVBF). This group of stocks’ market valuations are similar to QTS’s market valuation.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $58 million, slightly higher than the $50 million figure in QTS’s case. Endurance International Group Hldgs Inc (NASDAQ:EIGI) is the most popular stock in this table. On the other hand, CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 5 bullish hedge fund positions. QTS Realty Trust Inc (NYSE:QTS) 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. In this regard EIGI might be a better candidate to consider a long position.