Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Healthcare Realty Trust Inc (NYSE:HR)? The smart money sentiment can provide an answer to this question.
Healthcare Realty Trust Inc (NYSE:HR) was in 12 hedge funds’ portfolios at the end of September. HR has seen an increase in hedge fund interest recently. There were 9 hedge funds in our database with HR positions at the end of the previous quarter. Our calculations also showed that HR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Andrew Sandler of Sandler Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a peek at the recent hedge fund action regarding Healthcare Realty Trust Inc (NYSE:HR).
How have hedgies been trading Healthcare Realty Trust Inc (NYSE:HR)?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the second quarter of 2019. By comparison, 4 hedge funds held shares or bullish call options in HR a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of Healthcare Realty Trust Inc (NYSE:HR), with a stake worth $17.6 million reported as of the end of September. Trailing Millennium Management was Impax Asset Management, which amassed a stake valued at $8.4 million. Sandler Capital Management, Citadel Investment Group, and AQR Capital Management 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 Sandler Capital Management allocated the biggest weight to Healthcare Realty Trust Inc (NYSE:HR), around 0.63% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to HR.
Consequently, specific money managers have jumped into Healthcare Realty Trust Inc (NYSE:HR) headfirst. Impax Asset Management, managed by Ian Simm, created the largest position in Healthcare Realty Trust Inc (NYSE:HR). Impax Asset Management had $8.4 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $1.6 million position during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, David E. Shaw’s D E Shaw, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s check out hedge fund activity in other stocks similar to Healthcare Realty Trust Inc (NYSE:HR). We will take a look at Webster Financial Corporation (NYSE:WBS), Telecom Argentina S.A. (NYSE:TEO), Spirit Realty Capital Inc (NYSE:SRC), and Clean Harbors Inc (NYSE:CLH). This group of stocks’ market values are closest to HR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WBS | 22 | 337629 | 0 |
| TEO | 4 | 29115 | 1 |
| SRC | 18 | 147316 | -5 |
| CLH | 26 | 388088 | -1 |
| Average | 17.5 | 225537 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $45 million in HR’s case. Clean Harbors Inc (NYSE:CLH) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 4 bullish hedge fund positions. Healthcare Realty Trust Inc (NYSE:HR) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HR investors were disappointed as the stock returned 0% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
