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Hedge Funds Are Cashing Out Of Innovative Industrial Properties, Inc. (IIPR)

Debasis Saha

In this article we will take a look at whether hedge funds think Innovative Industrial Properties, Inc. (NYSE:IIPR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Innovative Industrial Properties, Inc. (NYSE:IIPR) was in 14 hedge funds' portfolios at the end of March. IIPR has experienced a decrease in support from the world's most elite money managers of late. There were 16 hedge funds in our database with IIPR positions at the end of the previous quarter. Our calculations also showed that IIPR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_747404" align="aligncenter" width="400"] Stuart Zimmer of Zimmer Partners[/caption]

Stuart Zimmer Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a peek at the new hedge fund action regarding Innovative Industrial Properties, Inc. (NYSE:IIPR).

How are hedge funds trading Innovative Industrial Properties, Inc. (NYSE:IIPR)?

Heading into the second quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in IIPR a year ago. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Is IIPR A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Zimmer Partners, managed by Stuart J. Zimmer, holds the most valuable position in Innovative Industrial Properties, Inc. (NYSE:IIPR). Zimmer Partners has a $64.4 million position in the stock, comprising 1.4% of its 13F portfolio. The second most bullish fund manager is Capital Growth Management, led by Ken Heebner, holding a $19.4 million position; the fund has 2.7% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass Ken Griffin's Citadel Investment Group, Ken Griffin's Citadel Investment Group and Matthew Hulsizer's PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Capital Growth Management allocated the biggest weight to Innovative Industrial Properties, Inc. (NYSE:IIPR), around 2.72% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, designating 1.43 percent of its 13F equity portfolio to IIPR.

Since Innovative Industrial Properties, Inc. (NYSE:IIPR) has experienced a decline in interest from hedge fund managers, logic holds that there lies a certain "tier" of fund managers who sold off their entire stakes in the first quarter. Intriguingly, Jeffrey Hinkle's Shoals Capital Management sold off the largest investment of the 750 funds watched by Insider Monkey, totaling about $8.3 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund said goodbye to about $6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds in the first quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Innovative Industrial Properties, Inc. (NYSE:IIPR) but similarly valued. We will take a look at Revolution Medicines, Inc. (NASDAQ:RVMD), Lions Gate Entertainment Corporation (NYSE:LGF-A), Equitrans Midstream Corporation (NYSE:ETRN), and Argo Group International Holdings, Ltd. (NYSE:ARGO). This group of stocks' market values are similar to IIPR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RVMD,20,223473,20 LGF-A,23,207237,4 ETRN,19,227760,4 ARGO,16,138003,-3 Average,19.5,199118,6.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $99 million in IIPR's case. Lions Gate Entertainment Corporation (NYSE:LGF-A) is the most popular stock in this table. On the other hand Argo Group International Holdings, Ltd. (NYSE:ARGO) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Innovative Industrial Properties, Inc. (NYSE:IIPR) is even less popular than ARGO. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on IIPR, though not to the same extent, as the stock returned 22.3% during the second quarter (through June 25th) and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.

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