Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards PS Business Parks Inc (NYSE:PSB).
PS Business Parks Inc (NYSE:PSB) has experienced a decrease in support from the world’s most elite money managers of late. Our calculations also showed that PSB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action encompassing PS Business Parks Inc (NYSE:PSB).
Hedge fund activity in PS Business Parks Inc (NYSE:PSB)
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in PSB a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Winton Capital Management was the largest shareholder of PS Business Parks Inc (NYSE:PSB), with a stake worth $17.7 million reported as of the end of September. Trailing Winton Capital Management was GLG Partners, which amassed a stake valued at $11.4 million. Echo Street Capital Management, AQR Capital Management, and Two Sigma Advisors 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 Winton Capital Management allocated the biggest weight to PS Business Parks Inc (NYSE:PSB), around 0.25% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, dishing out 0.11 percent of its 13F equity portfolio to PSB.
Since PS Business Parks Inc (NYSE:PSB) has faced a decline in interest from hedge fund managers, it’s safe to say that there was a specific group of hedgies who were dropping their positions entirely heading into Q4. It’s worth mentioning that Peter Algert and Kevin Coldiron’s Algert Coldiron Investors dumped the biggest position of all the hedgies watched by Insider Monkey, totaling an estimated $2.1 million in stock. Roger Ibbotson’s fund, Zebra Capital Management, also sold off its stock, about $1.3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PS Business Parks Inc (NYSE:PSB) but similarly valued. We will take a look at Helen of Troy Limited (NASDAQ:HELE), MorphoSys AG (NASDAQ:MOR), Janus Henderson Group plc (NYSE:JHG), and ViaSat, Inc. (NASDAQ:VSAT). This group of stocks’ market values are similar to PSB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HELE | 17 | 208287 | 2 |
| MOR | 6 | 18693 | 2 |
| JHG | 18 | 198961 | 2 |
| VSAT | 26 | 1810045 | -4 |
| Average | 16.75 | 558997 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $559 million. That figure was $55 million in PSB’s case. ViaSat, Inc. (NASDAQ:VSAT) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 6 bullish hedge fund positions. PS Business Parks Inc (NYSE:PSB) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately PSB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PSB investors were disappointed as the stock returned -29.1% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
