We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Equity Lifestyle Properties, Inc. (NYSE:ELS).
Equity Lifestyle Properties, Inc. (NYSE:ELS) has experienced an increase in activity from the world's largest hedge funds in recent months. ELS was in 19 hedge funds' portfolios at the end of September. There were 18 hedge funds in our database with ELS holdings at the end of the previous quarter. Our calculations also showed that ELS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_673972" align="aligncenter" width="473"] Blair Levinsky of Waratah Capital Advisors[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a look at the key hedge fund action surrounding Equity Lifestyle Properties, Inc. (NYSE:ELS).
Hedge fund activity in Equity Lifestyle Properties, Inc. (NYSE:ELS)
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in ELS a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Equity Lifestyle Properties, Inc. (NYSE:ELS), with a stake worth $339.5 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $54.3 million. Waratah Capital Advisors, AQR Capital Management, and D E Shaw 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 Waratah Capital Advisors allocated the biggest weight to Equity Lifestyle Properties, Inc. (NYSE:ELS), around 3.89% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, designating 0.51 percent of its 13F equity portfolio to ELS.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Laurion Capital Management, managed by Benjamin A. Smith, created the most valuable position in Equity Lifestyle Properties, Inc. (NYSE:ELS). Laurion Capital Management had $1 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $0.3 million investment in the stock during the quarter. The following funds were also among the new ELS investors: Donald Sussman's Paloma Partners, Ronald Hua's Qtron Investments, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now take a look at hedge fund activity in other stocks similar to Equity Lifestyle Properties, Inc. (NYSE:ELS). These stocks are Vornado Realty Trust (NYSE:VNO), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Lincoln National Corporation (NYSE:LNC), and Masco Corporation (NYSE:MAS). This group of stocks' market valuations are closest to ELS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VNO,32,724917,5 BMRN,45,1621801,0 LNC,34,1142033,-1 MAS,46,1007912,1 Average,39.25,1124166,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $1124 million. That figure was $522 million in ELS's case. Masco Corporation (NYSE:MAS) is the most popular stock in this table. On the other hand Vornado Realty Trust (NYSE:VNO) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Equity Lifestyle Properties, Inc. (NYSE:ELS) is even less popular than VNO. Hedge funds clearly dropped the ball on ELS 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ELS as the stock returned 10.9% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.