Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Armada Hoffler Properties Inc (NYSE:AHH) was in 9 hedge funds' portfolios at the end of June. AHH shareholders have witnessed a decrease in hedge fund sentiment recently. There were 11 hedge funds in our database with AHH positions at the end of the previous quarter. Our calculations also showed that AHH 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a 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 go over the fresh hedge fund action regarding Armada Hoffler Properties Inc (NYSE:AHH).
How have hedgies been trading Armada Hoffler Properties Inc (NYSE:AHH)?
Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AHH over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Armada Hoffler Properties Inc (NYSE:AHH) was held by Renaissance Technologies, which reported holding $57.9 million worth of stock at the end of March. It was followed by Royce & Associates with a $2.9 million position. Other investors bullish on the company included Springbok Capital, AQR Capital Management, and Millennium Management.
Seeing as Armada Hoffler Properties Inc (NYSE:AHH) has experienced a decline in interest from hedge fund managers, logic holds that there was a specific group of hedge funds who sold off their positions entirely heading into Q3. At the top of the heap, David Costen Haley's HBK Investments sold off the largest stake of all the hedgies tracked by Insider Monkey, comprising close to $0.2 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also said goodbye to its stock, about $0.2 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let's now review hedge fund activity in other stocks similar to Armada Hoffler Properties Inc (NYSE:AHH). These stocks are Sykes Enterprises, Incorporated (NASDAQ:SYKE), Huron Consulting Group Inc. (NASDAQ:HURN), Scholastic Corporation (NASDAQ:SCHL), and Axonics Modulation Technologies, Inc. (NASDAQ:AXNX). This group of stocks' market valuations are similar to AHH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYKE,15,54740,-2 HURN,11,31189,0 SCHL,14,71291,4 AXNX,12,132890,2 Average,13,72528,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $66 million in AHH's case. Sykes Enterprises, Incorporated (NASDAQ:SYKE) is the most popular stock in this table. On the other hand Huron Consulting Group Inc.(NASDAQ:HURN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Armada Hoffler Properties Inc (NYSE:AHH) is even less popular than HURN. Hedge funds clearly dropped the ball on AHH as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on AHH as the stock returned 10.6% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.