There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze HCP, Inc. (NYSE:HCP).
HCP, Inc. (NYSE:HCP) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 26 hedge funds' portfolios at the end of June. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as MGM Resorts International (NYSE:MGM), New Oriental Education & Tech Group Inc. (NYSE:EDU), and KB Financial Group, Inc. (NYSE:KB) to gather more data points. Our calculations also showed that HCP 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 some fund managers who are betting on Dow reaching 40000 in a year, 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 take a look at the new hedge fund action encompassing HCP, Inc. (NYSE:HCP).
What does smart money think about HCP, Inc. (NYSE:HCP)?
Heading into the third quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in HCP a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Among these funds, Zimmer Partners held the most valuable stake in HCP, Inc. (NYSE:HCP), which was worth $149.9 million at the end of the second quarter. On the second spot was AEW Capital Management which amassed $142.8 million worth of shares. Moreover, Citadel Investment Group, D E Shaw, and Carlson Capital were also bullish on HCP, Inc. (NYSE:HCP), allocating a large percentage of their portfolios to this stock.
Due to the fact that HCP, Inc. (NYSE:HCP) has witnessed declining sentiment from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of funds that elected to cut their full holdings heading into Q3. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, valued at close to $7.2 million in stock. Renaissance Technologies, also dumped its stock, about $6.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as HCP, Inc. (NYSE:HCP) but similarly valued. These stocks are MGM Resorts International (NYSE:MGM), New Oriental Education & Tech Group Inc. (NYSE:EDU), KB Financial Group, Inc. (NYSE:KB), and Continental Resources, Inc. (NYSE:CLR). This group of stocks' market valuations match HCP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGM,35,1982659,-10 EDU,32,849989,4 KB,9,56122,-3 CLR,34,494249,3 Average,27.5,845755,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $846 million. That figure was $635 million in HCP's case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 9 bullish hedge fund positions. HCP, Inc. (NYSE:HCP) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on HCP as the stock returned 12.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.