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 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 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’ consensus 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 Physicians Realty Trust (NYSE:DOC).
Physicians Realty Trust (NYSE:DOC) investors should pay attention to an increase in hedge fund interest of late. Our calculations also showed that DOC 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.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Dmitry Balyasny of Balyasny Asset Managemnet
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 take a look at the recent hedge fund action encompassing Physicians Realty Trust (NYSE:DOC).
What does smart money think about Physicians Realty Trust (NYSE:DOC)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the second quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in DOC a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Balyasny Asset Management, managed by Dmitry Balyasny, holds the number one position in Physicians Realty Trust (NYSE:DOC). Balyasny Asset Management has a $16.4 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $15 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions include Anand Parekh’s Alyeska Investment Group, Andrew Sandler’s Sandler Capital Management and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Sandler Capital Management allocated the biggest weight to Physicians Realty Trust (NYSE:DOC), around 0.63% of its 13F portfolio. Hudson Bay Capital Management is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to DOC.
As one would reasonably expect, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the largest position in Physicians Realty Trust (NYSE:DOC). Balyasny Asset Management had $16.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $3.4 million position during the quarter. The only other fund with a brand new DOC position is Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s go over hedge fund activity in other stocks similar to Physicians Realty Trust (NYSE:DOC). These stocks are Parsons Corporation (NYSE:PSN), Hancock Whitney Corporation (NASDAQ:HWC), Associated Banc Corp (NYSE:ASB), and Pan American Silver Corp. (NASDAQ:PAAS). This group of stocks’ market values match DOC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PSN | 12 | 74996 | -3 |
| HWC | 18 | 96247 | 2 |
| ASB | 20 | 209005 | 1 |
| PAAS | 22 | 328752 | 5 |
| Average | 18 | 177250 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $177 million. That figure was $68 million in DOC’s case. Pan American Silver Corp. (NASDAQ:PAAS) is the most popular stock in this table. On the other hand Parsons Corporation (NYSE:PSN) is the least popular one with only 12 bullish hedge fund positions. Physicians Realty Trust (NYSE:DOC) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on DOC, though not to the same extent, as the stock returned 9.5% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
