Should I Buy Paramount Group Inc (PGRE)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Paramount Group Inc (NYSE:PGRE) and determine whether hedge funds skillfully traded this stock.

Paramount Group Inc (NYSE:PGRE) has seen an increase in enthusiasm from smart money of late. Paramount Group Inc (NYSE:PGRE) was in 21 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 22. Our calculations also showed that PGRE isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Altman of Owl Creek Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind we’re going to review the key hedge fund action regarding Paramount Group Inc (NYSE:PGRE).

Hedge fund activity in Paramount Group Inc (NYSE:PGRE)

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in PGRE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Paramount Group Inc (NYSE:PGRE), which was worth $18.8 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $15.9 million worth of shares. Citadel Investment Group, Owl Creek Asset 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 Owl Creek Asset Management allocated the biggest weight to Paramount Group Inc (NYSE:PGRE), around 0.79% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.13 percent of its 13F equity portfolio to PGRE.

Now, key hedge funds have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the largest position in Paramount Group Inc (NYSE:PGRE). Millennium Management had $7.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new PGRE investors: Michael Gelband’s ExodusPoint Capital, Noam Gottesman’s GLG Partners, and Benjamin A. Smith’s Laurion Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Paramount Group Inc (NYSE:PGRE) but similarly valued. We will take a look at Silicon Motion Technology Corp. (NASDAQ:SIMO), WW International, Inc. (NASDAQ:WW), CareDx, Inc. (NASDAQ:CDNA), Sanmina Corporation (NASDAQ:SANM), Intra-Cellular Therapies Inc (NASDAQ:ITCI), Northwest Natural Holding Company (NYSE:NWN), and Fulton Financial Corp (NASDAQ:FULT). This group of stocks’ market caps are similar to PGRE’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $165 million. That figure was $98 million in PGRE’s case. WW International, Inc. (NASDAQ:WW) is the most popular stock in this table. On the other hand Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the least popular one with only 13 bullish hedge fund positions. Paramount Group Inc (NYSE:PGRE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PGRE is 66.4. 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. This is a slightly positive signal but 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately PGRE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PGRE were disappointed as the stock returned -6.9% in Q3 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 many of these stocks already outperformed the market so far this year.

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