Is UDR, Inc. (UDR) Going to Burn These Hedge Funds?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of UDR, Inc. (NYSE:UDR) based on that data.

UDR, Inc. (NYSE:UDR) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that UDR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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.

Clint Carlson of Carlson Capital

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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the 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 latest hedge fund action surrounding UDR, Inc. (NYSE:UDR).

How have hedgies been trading UDR, Inc. (NYSE:UDR)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the fourth quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in UDR a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in UDR, Inc. (NYSE:UDR) was held by Renaissance Technologies, which reported holding $155.6 million worth of stock at the end of September. It was followed by Millennium Management with a $37.5 million position. Other investors bullish on the company included Carlson Capital, Adage Capital Management, and Winton Capital Management. In terms of the portfolio weights assigned to each position Carlson Capital allocated the biggest weight to UDR, Inc. (NYSE:UDR), around 0.46% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.23 percent of its 13F equity portfolio to UDR.

Judging by the fact that UDR, Inc. (NYSE:UDR) has experienced a decline in interest from hedge fund managers, we can see that there were a few hedge funds that decided to sell off their entire stakes by the end of the first quarter. Intriguingly, Greg Poole’s Echo Street Capital Management said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $16.6 million in stock. Daniel S. Och’s fund, OZ Management, also said goodbye to its stock, about $2.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as UDR, Inc. (NYSE:UDR) but similarly valued. We will take a look at SK Telecom Co., Ltd. (NYSE:SKM), Quest Diagnostics Incorporated (NYSE:DGX), Datadog, Inc. (NASDAQ:DDOG), and XP Inc. (NASDAQ:XP). All of these stocks’ market caps resemble UDR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $382 million. That figure was $250 million in UDR’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 5 bullish hedge fund positions. UDR, Inc. (NYSE:UDR) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately UDR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); UDR investors were disappointed as the stock returned 4.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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