Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Duke Realty Corporation (NYSE:DRE).
Is Duke Realty Corporation (NYSE:DRE) going to take off soon? Prominent investors are in a bearish mood. The number of long hedge fund bets were cut by 6 recently. Our calculations also showed that dre isn’t among the 30 most popular stocks among hedge funds.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to view the new hedge fund action regarding Duke Realty Corporation (NYSE:DRE).
How have hedgies been trading Duke Realty Corporation (NYSE:DRE)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards DRE over the last 15 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Duke Realty Corporation (NYSE:DRE) was held by AEW Capital Management, which reported holding $128.5 million worth of stock at the end of March. It was followed by Millennium Management with a $52.2 million position. Other investors bullish on the company included Renaissance Technologies, Balyasny Asset Management, and Winton Capital Management.
Seeing as Duke Realty Corporation (NYSE:DRE) has witnessed a decline in interest from hedge fund managers, logic holds that there were a few fund managers who sold off their entire stakes by the end of the third quarter. Interestingly, Greg Poole’s Echo Street Capital Management sold off the largest position of the “upper crust” of funds followed by Insider Monkey, worth close to $6.5 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund dumped about $2.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Duke Realty Corporation (NYSE:DRE). We will take a look at Lamb Weston Holdings, Inc. (NYSE:LW), Tableau Software Inc (NYSE:DATA), PTC Inc (NASDAQ:PTC), and EXACT Sciences Corporation (NASDAQ:EXAS). This group of stocks’ market valuations are closest to DRE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LW | 41 | 1255203 | 9 |
| DATA | 44 | 2281877 | 8 |
| PTC | 25 | 1387214 | -6 |
| EXAS | 33 | 814522 | 3 |
| Average | 35.75 | 1434704 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1435 million. That figure was $303 million in DRE’s case. Tableau Software Inc (NYSE:DATA) is the most popular stock in this table. On the other hand PTC Inc (NASDAQ:PTC) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Duke Realty Corporation (NYSE:DRE) is even less popular than PTC. Hedge funds clearly dropped the ball on DRE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on DRE as the stock returned 6.3% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
