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Do Hedge Funds Love SL Green Realty Corp (SLG)?

Reymerlyn Martin

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of SL Green Realty Corp (NYSE:SLG).

Is SL Green Realty Corp (NYSE:SLG) going to take off soon? Prominent investors are selling. The number of long hedge fund bets were trimmed by 4 in recent months. Our calculations also showed that SLG 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.

5 Most Popular Stocks Among Hedge Funds

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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

GOTHAM ASSET MANAGEMENT

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. Let's check out the key hedge fund action encompassing SL Green Realty Corp (NYSE:SLG).

What does smart money think about SL Green Realty Corp (NYSE:SLG)?

At Q2's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the first quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in SLG a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

SLG_oct2019

The largest stake in SL Green Realty Corp (NYSE:SLG) was held by Long Pond Capital, which reported holding $91.4 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $91.1 million position. Other investors bullish on the company included Winton Capital Management, Millennium Management, and Citadel Investment Group.

Due to the fact that SL Green Realty Corp (NYSE:SLG) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers that slashed their entire stakes last quarter. Intriguingly, John A. Levin's Levin Capital Strategies dropped the largest stake of all the hedgies watched by Insider Monkey, worth an estimated $6.4 million in call options. D. E. Shaw's fund, D E Shaw, also dropped its call options, about $2.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to SL Green Realty Corp (NYSE:SLG). We will take a look at LPL Financial Holdings Inc (NASDAQ:LPLA), WABCO Holdings Inc. (NYSE:WBC), Royal Gold, Inc (NASDAQ:RGLD), and Anaplan, Inc. (NYSE:PLAN). This group of stocks' market valuations match SLG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LPLA,31,1017283,-2 WBC,33,1345936,-3 RGLD,19,68231,2 PLAN,37,1639092,15 Average,30,1017636,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $1018 million. That figure was $276 million in SLG's case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand Royal Gold, Inc (NASDAQ:RGLD) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks SL Green Realty Corp (NYSE:SLG) is even less popular than RGLD. 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. A small number of hedge funds were also right about betting on SLG, though not to the same extent, as the stock returned 2.8% during the third quarter and outperformed the market as well.

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

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