Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Farmland Partners Inc (NYSE:FPI) from the perspective of those elite funds.
Farmland Partners Inc (NYSE:FPI) was in 9 hedge funds' portfolios at the end of March. FPI has seen an increase in enthusiasm from smart money recently. There were 8 hedge funds in our database with FPI positions at the end of the previous quarter. Our calculations also showed that FPI isn't among the 30 most popular stocks among hedge funds.
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 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 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 our short portfolio.
We're going to check out the recent hedge fund action encompassing Farmland Partners Inc (NYSE:FPI).
How are hedge funds trading Farmland Partners Inc (NYSE:FPI)?
At Q1's end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in FPI a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in Farmland Partners Inc (NYSE:FPI) was held by D E Shaw, which reported holding $2.5 million worth of stock at the end of March. It was followed by Oaktree Capital Management with a $2.2 million position. Other investors bullish on the company included Marshall Wace LLP, Citadel Investment Group, and Forward Management.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the largest position in Farmland Partners Inc (NYSE:FPI). Millennium Management had $0.3 million invested in the company at the end of the quarter. Jim Simons's Renaissance Technologies also made a $0.2 million investment in the stock during the quarter. The only other fund with a brand new FPI position is Ken Griffin's Citadel Investment Group.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Farmland Partners Inc (NYSE:FPI) but similarly valued. These stocks are Timberland Bancorp, Inc. (NASDAQ:TSBK), RedHill Biopharma Ltd (NASDAQ:RDHL), Aeglea BioTherapeutics, Inc. (NASDAQ:AGLE), and FVCBankcorp, Inc. (NASDAQ:FVCB). This group of stocks' market caps are similar to FPI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSBK,4,30686,0 RDHL,3,31628,-2 AGLE,17,84161,6 FVCB,3,7575,0 Average,6.75,38513,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $8 million in FPI's case. Aeglea BioTherapeutics, Inc. (NASDAQ:AGLE) is the most popular stock in this table. On the other hand RedHill Biopharma Ltd (NASDAQ:RDHL) is the least popular one with only 3 bullish hedge fund positions. Farmland Partners Inc (NYSE:FPI) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on FPI, though not to the same extent, as the stock returned 5.3% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.