Is Realty Income Corporation (O) Going to Burn These Hedge Funds?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 30th, so let’s proceed with the discussion of the hedge fund sentiment on Realty Income Corporation (NYSE:O).

Realty Income Corporation (NYSE:O) has experienced an increase in support from the world’s most elite money managers lately. Realty Income Corporation (NYSE:O) was in 23 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 26. There were 18 hedge funds in our database with O holdings at the end of March. Our calculations also showed that O isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by 79 percentage points since March 2017 (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.

Phillip Gross of Adage CapitalPhill Gross

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s view the latest hedge fund action encompassing Realty Income Corporation (NYSE:O).

Do Hedge Funds Think O Is A Good Stock To Buy Now?

At the end of June, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in O over the last 24 quarters. 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, Millennium Management was the largest shareholder of Realty Income Corporation (NYSE:O), with a stake worth $64.4 million reported as of the end of June. Trailing Millennium Management was Adage Capital Management, which amassed a stake valued at $56.8 million. D E Shaw, Balyasny Asset Management, and Citadel Investment Group 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 Hill Winds Capital allocated the biggest weight to Realty Income Corporation (NYSE:O), around 2.65% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, designating 0.47 percent of its 13F equity portfolio to O.

With a general bullishness amongst the heavyweights, specific money managers have jumped into Realty Income Corporation (NYSE:O) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most outsized position in Realty Income Corporation (NYSE:O). Balyasny Asset Management had $17.5 million invested in the company at the end of the quarter. Matthew Crandall Gilman’s Hill Winds Capital also made a $5 million investment in the stock during the quarter. The following funds were also among the new O investors: Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, Clint Carlson’s Carlson Capital, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Realty Income Corporation (NYSE:O) but similarly valued. These stocks are DTE Energy Company (NYSE:DTE), ZTO Express (Cayman) Inc. (NYSE:ZTO), Enphase Energy Inc (NASDAQ:ENPH), Royalty Pharma Plc (NASDAQ:RPRX), Credit Suisse Group AG (NYSE:CS), ONEOK, Inc. (NYSE:OKE), and Yandex NV (NASDAQ:YNDX). This group of stocks’ market values are closest to O’s market value.

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As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $773 million. That figure was $222 million in O’s case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 10 bullish hedge fund positions. Realty Income Corporation (NYSE:O) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for O is 55.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on O as the stock returned 8.6% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.