Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Corporate Office Properties Trust (NYSE:OFC) and see how the stock is affected by the recent hedge fund activity.
Corporate Office Properties Trust (NYSE:OFC) has seen a decrease in support from the world’s most elite money managers recently. Our calculations also showed that OFC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the new hedge fund action surrounding Corporate Office Properties Trust (NYSE:OFC).
How are hedge funds trading Corporate Office Properties Trust (NYSE:OFC)?
At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in OFC over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Corporate Office Properties Trust (NYSE:OFC), which was worth $80.5 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $33.1 million worth of shares. Citadel Investment Group, Balyasny Asset Management, and Fisher Asset 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 Gillson Capital allocated the biggest weight to Corporate Office Properties Trust (NYSE:OFC), around 0.42% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.39 percent of its 13F equity portfolio to OFC.
Because Corporate Office Properties Trust (NYSE:OFC) has faced falling interest from hedge fund managers, logic holds that there exists a select few funds that slashed their positions entirely last quarter. At the top of the heap, Jeffrey Furber’s AEW Capital Management sold off the largest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $45.5 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund dumped about $1.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Corporate Office Properties Trust (NYSE:OFC) but similarly valued. These stocks are American National Insurance Company (NASDAQ:ANAT), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), Allogene Therapeutics, Inc. (NASDAQ:ALLO), and MFA Financial, Inc. (NYSE:MFA). This group of stocks’ market caps are similar to OFC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ANAT | 16 | 60381 | 1 |
| CSOD | 21 | 721464 | -6 |
| ALLO | 5 | 110052 | -3 |
| MFA | 17 | 97442 | 0 |
| Average | 14.75 | 247335 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $247 million. That figure was $189 million in OFC’s case. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is the most popular stock in this table. On the other hand Allogene Therapeutics, Inc. (NASDAQ:ALLO) is the least popular one with only 5 bullish hedge fund positions. Corporate Office Properties Trust (NYSE:OFC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OFC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OFC were disappointed as the stock returned -2% during the fourth quarter (through the end of November) 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.
