Is Realty Income Corporation (NYSE:O) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Realty Income Corporation (NYSE:O) a sound investment today? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund positions shrunk by 6 recently. Our calculations also showed that O isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). O was in 16 hedge funds’ portfolios at the end of the third quarter of 2019. There were 22 hedge funds in our database with O holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are a large number of gauges stock traders have at their disposal to evaluate stocks. A pair of the most under-the-radar gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top hedge fund managers can beat the market by a superb margin (see the details here).
Phill Gross of Adage 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. Let’s take a look at the latest hedge fund action regarding Realty Income Corporation (NYSE:O).
How are hedge funds trading Realty Income Corporation (NYSE:O)?
Heading into the fourth quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in O a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Stuart J. Zimmer’s Zimmer Partners has the most valuable position in Realty Income Corporation (NYSE:O), worth close to $76.7 million, amounting to 0.8% of its total 13F portfolio. Sitting at the No. 2 spot is Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $29.2 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions consist of John Overdeck and David Siegel’s Two Sigma Advisors, Cliff Asness’s AQR Capital Management and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to Realty Income Corporation (NYSE:O), around 0.83% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.23 percent of its 13F equity portfolio to O.
Because Realty Income Corporation (NYSE:O) has witnessed bearish sentiment from the smart money, logic holds that there were a few hedge funds who sold off their entire stakes in the third quarter. Interestingly, Renaissance Technologies dropped the biggest stake of the 750 funds watched by Insider Monkey, valued at about $15.8 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund sold off about $12.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 6 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Realty Income Corporation (NYSE:O). These stocks are DTE Energy Company (NYSE:DTE), Waste Connections, Inc. (NYSE:WCN), PACCAR Inc (NASDAQ:PCAR), and Xilinx, Inc. (NASDAQ:XLNX). All of these stocks’ market caps match O’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DTE | 20 | 678909 | -8 |
| WCN | 29 | 575449 | 3 |
| PCAR | 25 | 193757 | -2 |
| XLNX | 38 | 1040263 | -1 |
| Average | 28 | 622095 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $622 million. That figure was $178 million in O’s case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand DTE Energy Company (NYSE:DTE) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Realty Income Corporation (NYSE:O) is even less popular than DTE. Hedge funds dodged a bullet by taking a bearish stance towards O. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately O wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); O investors were disappointed as the stock returned 0.5% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
