The market has been volatile as the Federal Reserve continues its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points through November 16th. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds’ movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of Vereit Inc (NYSE:VER) and find out how it is affected by hedge funds’ moves.
Is Vereit Inc (NYSE:VER) a sound investment right now? Investors who are in the know are getting less optimistic. The number of long hedge fund positions were trimmed by 3 recently. Our calculations also showed that ver isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to review the key hedge fund action regarding Vereit Inc (NYSE:VER).
How are hedge funds trading Vereit Inc (NYSE:VER)?
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in VER over the last 13 quarters. 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, Eminence Capital held the most valuable stake in Vereit Inc (NYSE:VER), which was worth $109.3 million at the end of the third quarter. On the second spot was Redwood Capital Management which amassed $67.5 million worth of shares. Moreover, Glenview Capital, Glendon Capital Management, and Lakewood Capital Management were also bullish on Vereit Inc (NYSE:VER), allocating a large percentage of their portfolios to this stock.
Due to the fact that Vereit Inc (NYSE:VER) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of fund managers that slashed their entire stakes by the end of the third quarter. At the top of the heap, Jonathon Jacobson’s Highfields Capital Management dropped the largest position of the 700 funds watched by Insider Monkey, comprising close to $48.5 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dumped its stock, about $7.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Vereit Inc (NYSE:VER) but similarly valued. These stocks are AMERCO (NASDAQ:UHAL), Flex Ltd. (NASDAQ:FLEX), The Chemours Company (NYSE:CC), and Apartment Investment and Management Co. (NYSE:AIV). This group of stocks’ market caps resemble VER’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UHAL | 8 | 409239 | 0 |
| FLEX | 26 | 935426 | -4 |
| CC | 31 | 791928 | 0 |
| AIV | 18 | 640826 | -2 |
| Average | 20.75 | 694355 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $694 million. That figure was $492 million in VER’s case. The Chemours Company (NYSE:CC) is the most popular stock in this table. On the other hand AMERCO (NASDAQ:UHAL) is the least popular one with only 8 bullish hedge fund positions. Vereit Inc (NYSE:VER) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CC might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
