We can judge whether Paramount Group Inc (NYSE:PGRE) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Paramount Group Inc (NYSE:PGRE) a buy right now? The smart money is taking a bearish view. The number of bullish hedge fund bets fell by 3 lately. Our calculations also showed that PGRE 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.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. We're going to take a peek at the latest hedge fund action encompassing Paramount Group Inc (NYSE:PGRE).
Hedge fund activity in Paramount Group Inc (NYSE:PGRE)
Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PGRE over the last 16 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Long Pond Capital, managed by John Khoury, holds the number one position in Paramount Group Inc (NYSE:PGRE). Long Pond Capital has a $114.6 million position in the stock, comprising 3.4% of its 13F portfolio. Coming in second is Renaissance Technologies holding a $71.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Noam Gottesman's GLG Partners, Ken Griffin's Citadel Investment Group and John Overdeck and David Siegel's Two Sigma Advisors.
Due to the fact that Paramount Group Inc (NYSE:PGRE) has experienced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of money managers that slashed their positions entirely heading into Q3. Interestingly, Dmitry Balyasny's Balyasny Asset Management sold off the biggest stake of the 750 funds monitored by Insider Monkey, valued at an estimated $14.7 million in stock, and Cliff Asness's AQR Capital Management was right behind this move, as the fund dumped about $1.6 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q3.
Let's now review hedge fund activity in other stocks similar to Paramount Group Inc (NYSE:PGRE). We will take a look at Allogene Therapeutics, Inc. (NASDAQ:ALLO), Clearway Energy, Inc. (NYSE:CWEN), Federated Investors Inc (NYSE:FII), and AmeriGas Partners, L.P. (NYSE:APU). This group of stocks' market caps are similar to PGRE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLO,8,106337,0 CWEN,19,152318,-8 FII,22,274576,9 APU,8,80334,2 Average,14.25,153391,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $257 million in PGRE's case. Federated Investors Inc (NYSE:FII) is the most popular stock in this table. On the other hand Allogene Therapeutics, Inc. (NASDAQ:ALLO) is the least popular one with only 8 bullish hedge fund positions. Paramount Group Inc (NYSE:PGRE) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PGRE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PGRE investors were disappointed as the stock returned -4% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.