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In this article we will check out the progression of hedge fund sentiment towards Agree Realty Corporation (NYSE:ADC) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is ADC a good stock to buy now? Hedge fund interest in Agree Realty Corporation (NYSE:ADC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ADC 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). At the end of this article we will also compare ADC to other stocks including Unum Group (NYSE:UNM), Boyd Gaming Corporation (NYSE:BYD), and Cannae Holdings, Inc. (NYSE:CNNE) to get a better sense of its popularity.
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.
Clint Carlson of Carlson Capital
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. Now we're going to view the key hedge fund action regarding Agree Realty Corporation (NYSE:ADC).
Do Hedge Funds Think ADC Is A Good Stock To Buy Now?
At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ADC over the last 21 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Zimmer Partners held the most valuable stake in Agree Realty Corporation (NYSE:ADC), which was worth $95.5 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $82.2 million worth of shares. Millennium Management, Carlson Capital, and Two Sigma Advisors 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 Hill Winds Capital allocated the biggest weight to Agree Realty Corporation (NYSE:ADC), around 7.37% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, dishing out 1.48 percent of its 13F equity portfolio to ADC.
Since Agree Realty Corporation (NYSE:ADC) has faced declining sentiment from hedge fund managers, it's safe to say that there were a few fund managers that slashed their full holdings in the third quarter. Intriguingly, Minhua Zhang's Weld Capital Management sold off the biggest investment of all the hedgies followed by Insider Monkey, worth close to $0.9 million in stock. Karim Abbadi and Edward McBride's fund, Centiva Capital, also said goodbye to its stock, about $0.3 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Agree Realty Corporation (NYSE:ADC) but similarly valued. These stocks are Unum Group (NYSE:UNM), Boyd Gaming Corporation (NYSE:BYD), Cannae Holdings, Inc. (NYSE:CNNE), South State Corporation (NASDAQ:SSB), Brooks Automation, Inc. (NASDAQ:BRKS), LiveRamp Holdings, Inc. (NYSE:RAMP), and Hamilton Lane Incorporated (NASDAQ:HLNE). This group of stocks' market valuations resemble ADC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNM,22,202453,0 BYD,28,254919,4 CNNE,29,423642,-14 SSB,23,94947,-1 BRKS,17,161969,2 RAMP,28,157294,3 HLNE,16,75971,-3 Average,23.3,195885,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $250 million in ADC's case. Cannae Holdings, Inc. (NYSE:CNNE) is the most popular stock in this table. On the other hand Hamilton Lane Incorporated (NASDAQ:HLNE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Agree Realty Corporation (NYSE:ADC) is even less popular than HLNE. Our overall hedge fund sentiment score for ADC is 27.9. 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. Hedge funds dodged a bullet by taking a bearish stance towards ADC. Our calculations showed that the top 20 most popular hedge fund stocks 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 but managed to beat the market again by 15.8 percentage points. Unfortunately ADC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ADC investors were disappointed as the stock returned 4.5% since the end of the third quarter (through 12/14) 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 most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.