Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of AvalonBay Communities Inc (NYSE:AVB) based on that data and determine whether they were really smart about the stock.
Is AvalonBay Communities Inc (NYSE:AVB) undervalued? Prominent investors were getting more bullish. The number of bullish hedge fund bets increased by 4 in recent months. AvalonBay Communities Inc (NYSE:AVB) was in 34 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AVB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 30 hedge funds in our database with AVB holdings at the end of March. 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 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 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.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let's review the fresh hedge fund action regarding AvalonBay Communities Inc (NYSE:AVB).
Hedge fund activity in AvalonBay Communities Inc (NYSE:AVB)
At the end of the second quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AVB over the last 20 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, D1 Capital Partners was the largest shareholder of AvalonBay Communities Inc (NYSE:AVB), with a stake worth $543 million reported as of the end of September. Trailing D1 Capital Partners was Echo Street Capital Management, which amassed a stake valued at $167.6 million. Long Pond Capital, Renaissance Technologies, and AQR Capital Management 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 Long Pond Capital allocated the biggest weight to AvalonBay Communities Inc (NYSE:AVB), around 5.39% of its 13F portfolio. Centerbridge Partners is also relatively very bullish on the stock, earmarking 4.96 percent of its 13F equity portfolio to AVB.
As one would reasonably expect, some big names were leading the bulls' herd. D1 Capital Partners, managed by Daniel Sundheim, initiated the most outsized position in AvalonBay Communities Inc (NYSE:AVB). D1 Capital Partners had $543 million invested in the company at the end of the quarter. Brian J. Higgins's King Street Capital also initiated a $23.5 million position during the quarter. The other funds with brand new AVB positions are Mark T. Gallogly's Centerbridge Partners, Paul Marshall and Ian Wace's Marshall Wace LLP, and Chen Tianqiao's Shanda Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as AvalonBay Communities Inc (NYSE:AVB) but similarly valued. These stocks are Tyson Foods, Inc. (NYSE:TSN), PT Telekomunikasi Indonesia (NYSE:TLK), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Align Technology, Inc. (NASDAQ:ALGN), Welltower Inc. (NYSE:WELL), Sun Life Financial Inc. (NYSE:SLF), and Stanley Black & Decker, Inc. (NYSE:SWK). This group of stocks' market values are similar to AVB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSN,37,649082,-4 TLK,4,166226,-3 CRWD,78,3277716,13 ALGN,41,1960739,2 WELL,27,655260,2 SLF,14,85306,-2 SWK,33,807322,-3 Average,33.4,1085950,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $1086 million. That figure was $1283 million in AVB's case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand PT Telekomunikasi Indonesia (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. AvalonBay Communities Inc (NYSE:AVB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AVB is 59.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately AVB wasn't nearly as popular as these 10 stocks and hedge funds that were betting on AVB were disappointed as the stock returned 2.2% 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.
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Disclosure: None. This article was originally published at Insider Monkey.