Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Washington Real Estate Investment Trust (NYSE:WRE).
Washington Real Estate Investment Trust (NYSE:WRE) investors should be aware of an increase in support from the world's most elite money managers of late. Our calculations also showed that WRE isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 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 S&P 500 ETFs by 41 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 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.
[caption id="attachment_189632" align="aligncenter" width="400"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a look at the fresh hedge fund action surrounding Washington Real Estate Investment Trust (NYSE:WRE).
Hedge fund activity in Washington Real Estate Investment Trust (NYSE:WRE)
Heading into the first quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 80% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in WRE a year ago. So, let's find 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 Washington Real Estate Investment Trust (NYSE:WRE), with a stake worth $112.5 million reported as of the end of September. Trailing Renaissance Technologies was Winton Capital Management, which amassed a stake valued at $9.8 million. Citadel Investment Group, Point72 Asset Management, and ExodusPoint Capital 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 Winton Capital Management allocated the biggest weight to Washington Real Estate Investment Trust (NYSE:WRE), around 0.14% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to WRE.
Consequently, specific money managers were breaking ground themselves. Winton Capital Management, managed by David Harding, established the most valuable position in Washington Real Estate Investment Trust (NYSE:WRE). Winton Capital Management had $9.8 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are D. E. Shaw's D E Shaw, Benjamin A. Smith's Laurion Capital Management, and Mika Toikka's AlphaCrest Capital Management.
Let's go over hedge fund activity in other stocks similar to Washington Real Estate Investment Trust (NYSE:WRE). These stocks are Tenable Holdings, Inc. (NASDAQ:TENB), PQ Group Holdings Inc. (NYSE:PQG), Mednax Inc. (NYSE:MD), and Korn Ferry (NYSE:KFY). This group of stocks' market values match WRE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TENB,22,210963,3 PQG,4,55625,-4 MD,33,488775,12 KFY,19,177220,-8 Average,19.5,233146,0.75 [/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 $233 million. That figure was $128 million in WRE's case. Mednax Inc. (NYSE:MD) is the most popular stock in this table. On the other hand PQ Group Holdings Inc. (NYSE:PQG) is the least popular one with only 4 bullish hedge fund positions. Washington Real Estate Investment Trust (NYSE:WRE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately WRE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WRE investors were disappointed as the stock returned -22.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.