Should You Avoid Bluerock Residential Growth REIT Inc (BRG)?

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 Bluerock Residential Growth REIT Inc (NYSE:BRG) based on that data and determine whether they were really smart about the stock.

Is Bluerock Residential Growth REIT Inc (NYSE:BRG) an excellent stock to buy now? Money managers were becoming less hopeful. The number of bullish hedge fund positions were cut by 2 lately. Our calculations also showed that BRG 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). BRG was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. There were 12 hedge funds in our database with BRG holdings at the end of the previous quarter.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the recent hedge fund action encompassing Bluerock Residential Growth REIT Inc (NYSE:BRG).

What does smart money think about Bluerock Residential Growth REIT Inc (NYSE:BRG)?

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the fourth quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in BRG 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.

Among these funds, Renaissance Technologies held the most valuable stake in Bluerock Residential Growth REIT Inc (NYSE:BRG), which was worth $8.2 million at the end of the third quarter. On the second spot was D E Shaw which amassed $0.9 million worth of shares. Two Sigma Advisors, Arrowstreet Capital, and Marshall Wace LLP 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 EJF Capital allocated the biggest weight to Bluerock Residential Growth REIT Inc (NYSE:BRG), around 0.04% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to BRG.

Due to the fact that Bluerock Residential Growth REIT Inc (NYSE:BRG) has faced bearish sentiment from the smart money, it’s easy to see that there was a specific group of money managers who were dropping their full holdings heading into Q4. Interestingly, James Dondero’s Highland Capital Management dumped the largest position of all the hedgies followed by Insider Monkey, comprising close to $2.8 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also cut its stock, about $1.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Bluerock Residential Growth REIT Inc (NYSE:BRG). We will take a look at Enochian Biosciences Inc. (NASDAQ:ENOB), KalVista Pharmaceuticals, Inc. (NASDAQ:KALV), Soliton, Inc. (NASDAQ:SOLY), and Silvercrest Asset Management Group Inc (NASDAQ:SAMG). This group of stocks’ market values are closest to BRG’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $12 million in BRG’s case. KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) is the most popular stock in this table. On the other hand Enochian Biosciences Inc. (NASDAQ:ENOB) is the least popular one with only 1 bullish hedge fund positions. Bluerock Residential Growth REIT Inc (NYSE:BRG) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on BRG as the stock returned 48% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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