Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like American Campus Communities, Inc. (NYSE:ACC).
American Campus Communities, Inc. (NYSE:ACC) was in 17 hedge funds' portfolios at the end of June. ACC investors should be aware of a decrease in hedge fund interest recently. There were 19 hedge funds in our database with ACC holdings at the end of the previous quarter. Our calculations also showed that ACC isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the recent hedge fund action surrounding American Campus Communities, Inc. (NYSE:ACC).
What does smart money think about American Campus Communities, Inc. (NYSE:ACC)?
Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the first quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in ACC a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in American Campus Communities, Inc. (NYSE:ACC) was held by Citadel Investment Group, which reported holding $97.9 million worth of stock at the end of March. It was followed by Diamond Hill Capital with a $90.9 million position. Other investors bullish on the company included AEW Capital Management, Millennium Management, and Winton Capital Management.
Seeing as American Campus Communities, Inc. (NYSE:ACC) has faced falling interest from the smart money, logic holds that there is a sect of hedge funds that elected to cut their positions entirely in the second quarter. At the top of the heap, Matthew Tewksbury's Stevens Capital Management cut the largest position of the "upper crust" of funds monitored by Insider Monkey, comprising an estimated $1.2 million in stock. Jeffrey Talpins's fund, Element Capital Management, also said goodbye to its stock, about $0.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds in the second 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 Enel Chile S.A. (NYSE:ENIC), Donaldson Company, Inc. (NYSE:DCI), Gerdau SA (NYSE:GGB), and Exelixis, Inc. (NASDAQ:EXEL). This group of stocks' market valuations match ACC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENIC,6,28723,1 DCI,16,152244,0 GGB,7,117146,-3 EXEL,21,808994,-3 Average,12.5,276777,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $373 million in ACC's case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 6 bullish hedge fund positions. American Campus Communities, Inc. (NYSE:ACC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ACC, though not to the same extent, as the stock returned 5.2% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.