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In this article we are going to use hedge fund sentiment as a tool and determine whether American Campus Communities, Inc. (NYSE:ACC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is ACC a good stock to buy now? American Campus Communities, Inc. (NYSE:ACC) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 26. ACC has seen a decrease in enthusiasm from smart money lately. There were 26 hedge funds in our database with ACC positions at the end of the second quarter. Our calculations also showed that ACC isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Fred DiSanto of Ancora Advisors
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we're going to review the new hedge fund action encompassing American Campus Communities, Inc. (NYSE:ACC).
Do Hedge Funds Think ACC Is A Good Stock To Buy Now?
At the end of September, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ACC over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Southpoint Capital Advisors held the most valuable stake in American Campus Communities, Inc. (NYSE:ACC), which was worth $73.3 million at the end of the third quarter. On the second spot was Governors Lane which amassed $48.3 million worth of shares. Land & Buildings Investment Management, Angelo Gordon & Co, and Diamond Hill Capital 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 Land & Buildings Investment Management allocated the biggest weight to American Campus Communities, Inc. (NYSE:ACC), around 8.85% of its 13F portfolio. Angelo Gordon & Co is also relatively very bullish on the stock, setting aside 4.75 percent of its 13F equity portfolio to ACC.
Seeing as American Campus Communities, Inc. (NYSE:ACC) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers who sold off their entire stakes last quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, comprising close to $10.7 million in stock, and Renaissance Technologies was right behind this move, as the fund dropped about $8.9 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to American Campus Communities, Inc. (NYSE:ACC). These stocks are Sasol Limited (NYSE:SSL), Prosperity Bancshares, Inc. (NYSE:PB), Zions Bancorporation, National Association (NASDAQ:ZION), Cenovus Energy Inc (NYSE:CVE), Nevro Corp (NYSE:NVRO), Skechers USA Inc (NYSE:SKX), and Euronet Worldwide, Inc. (NASDAQ:EEFT). This group of stocks' market values match ACC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSL,5,31702,-5 PB,27,105441,0 ZION,24,97741,0 CVE,18,241953,-8 NVRO,34,815256,-1 SKX,28,480907,-5 EEFT,39,395554,2 Average,25,309793,-2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $310 million. That figure was $349 million in ACC's case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 5 bullish hedge fund positions. American Campus Communities, Inc. (NYSE:ACC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ACC is 47.8. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on ACC as the stock returned 24% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.