U.S. markets closed

Hedge Funds Keep Buying Agree Realty Corporation (ADC)

Abigail Fisher

In this article we will take a look at whether hedge funds think Agree Realty Corporation (NYSE:ADC) 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.

Agree Realty Corporation (NYSE:ADC) has seen an increase in activity from the world's largest hedge funds lately. ADC was in 21 hedge funds' portfolios at the end of March. There were 18 hedge funds in our database with ADC positions at the end of the previous quarter. Our calculations also showed that ADC 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.

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 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 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_750227" align="aligncenter" width="392"] Alex Litowitz of Magnetar Capital[/caption]

Alex Litowitz Magnetar Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a peek at the new hedge fund action encompassing Agree Realty Corporation (NYSE:ADC).

What does smart money think about Agree Realty Corporation (NYSE:ADC)?

At Q1's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ADC over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Zimmer Partners was the largest shareholder of Agree Realty Corporation (NYSE:ADC), with a stake worth $170.2 million reported as of the end of September. Trailing Zimmer Partners was Citadel Investment Group, which amassed a stake valued at $76.8 million. Millennium Management, Two Sigma Advisors, 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 Hill Winds Capital allocated the biggest weight to Agree Realty Corporation (NYSE:ADC), around 3.79% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, earmarking 3.77 percent of its 13F equity portfolio to ADC.

As aggregate interest increased, some big names were leading the bulls' herd. JS Capital, managed by Jonathan Soros, initiated the biggest position in Agree Realty Corporation (NYSE:ADC). JS Capital had $0.9 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser's Magnetar Capital also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Steve Cohen's Point72 Asset Management, Mike Vranos's Ellington, and Matthew Crandall Gilman's Hill Winds Capital.

Let's now review hedge fund activity in other stocks similar to Agree Realty Corporation (NYSE:ADC). We will take a look at Brunswick Corporation (NYSE:BC), CVB Financial Corp. (NASDAQ:CVBF), Ardagh Group S.A. (NYSE:ARD), and ACI Worldwide Inc (NASDAQ:ACIW). All of these stocks' market caps resemble ADC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BC,23,411459,-13 CVBF,8,40046,-6 ARD,8,48967,-1 ACIW,24,271686,4 Average,15.75,193040,-4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $310 million in ADC's case. ACI Worldwide Inc (NASDAQ:ACIW) is the most popular stock in this table. On the other hand CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 8 bullish hedge fund positions. Agree Realty Corporation (NYSE:ADC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. Unfortunately ADC wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ADC were disappointed as the stock returned 13% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

[company-follow-email id=917251][/company-follow-email]

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

Related Content