What Smart Money Thinks about Realty Income Corp (O)?

We at Insider Monkey have gone over 700 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30. In this article we look at what those investors think of Realty Income Corp (NYSE:O).

Realty Income Corp (NYSE:O) investors should pay attention to an increase in hedge fund sentiment of late. At the end of September, 20 funds tracked by Insider Monkey held long positions in the company, compared to 14 funds a quarter earlier. At the end of this article we will also compare O to other stocks including Analog Devices, Inc. (NASDAQ:ADI), Magellan Midstream Partners, L.P. (NYSE:MMP), and Roper Industries, Inc. (NYSE:ROP) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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With all of this in mind, let’s view the recent action regarding Realty Income Corp (NYSE:O).

What have hedge funds been doing with Realty Income Corp (NYSE:O)?

As stated earlier, at the end of the third quarter, a total of 20 funds tracked by Insider Monkey were bullish on Realty Income Corp (NYSE:O), up by 43% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in Realty Income at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, led by Ken Griffin, holds the most valuable position in Realty Income Corp (NYSE:O). Citadel Investment Group has a $49.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Phill Gross and Robert Atchinson’s Adage Capital Management, with a $24.7 million position; 0.1% of its 13F portfolio is allocated to the company. Some other peers with similar optimism contain David Harding’s Winton Capital Management, Cliff Asness’ AQR Capital Management and David Costen Haley’s HBK Investments. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Two Sigma Advisors, led by John Overdeck and David Siegel, assembled the biggest position in Realty Income Corp (NYSE:O). Two Sigma Advisors had $13.2 million invested in the company at the end of the quarter. Malcolm Fairbairn’s Ascend Capital also initiated a $6.4 million position during the quarter. The other funds with brand new O positions are Israel Englander’s Millennium Management and Richard Driehaus’s Driehaus Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Realty Income Corp (NYSE:O). We will take a look at Analog Devices, Inc. (NASDAQ:ADI), Magellan Midstream Partners, L.P. (NYSE:MMP), Roper Industries, Inc. (NYSE:ROP), and C.R. Bard, Inc. (NYSE:BCR). This group of stocks’ market valuations are closest to Realty Income Corp’s market valuation.

As you can see these stocks had an average of 23 funds with bullish positions at the end of September and the average amount invested in these stocks was $760 million, which is significantly higher than the $171 million figure in  in Realty Income Corp’s case. C.R. Bard, Inc. (NYSE:BCR) is the most popular stock in this table. On the other hand Magellan Midstream Partners, L.P. (NYSE:MMP) is the least popular one with only 14 bullish hedge fund positions. Realty Income Corp (NYSE:O) 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. In this regard C.R. Bard, Inc. (NYSE:BCR) might be a better candidate to consider taking a long position in.