Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
Is Alexandria Real Estate Equities Inc (NYSE:ARE) a splendid investment now? Money managers are in an optimistic mood. The number of bullish hedge fund bets advanced by 10 lately. Our calculations also showed that ARE isn't among the 30 most popular stocks among hedge funds (view the video below). ARE was in 27 hedge funds' portfolios at the end of June. There were 17 hedge funds in our database with ARE positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 analyze the recent hedge fund action surrounding Alexandria Real Estate Equities Inc (NYSE:ARE).
How are hedge funds trading Alexandria Real Estate Equities Inc (NYSE:ARE)?
Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 59% from the first quarter of 2019. On the other hand, there were a total of 23 hedge funds with a bullish position in ARE a year ago. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Zimmer Partners was the largest shareholder of Alexandria Real Estate Equities Inc (NYSE:ARE), with a stake worth $124.9 million reported as of the end of March. Trailing Zimmer Partners was Millennium Management, which amassed a stake valued at $120.7 million. Citadel Investment Group, Echo Street Capital Management, and Waterfront Capital Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key hedge funds have been driving this bullishness. Zimmer Partners, managed by Stuart J. Zimmer, created the largest position in Alexandria Real Estate Equities Inc (NYSE:ARE). Zimmer Partners had $124.9 million invested in the company at the end of the quarter. Eduardo Abush's Waterfront Capital Partners also initiated a $31.4 million position during the quarter. The following funds were also among the new ARE investors: Clint Carlson's Carlson Capital, Alec Litowitz and Ross Laser's Magnetar Capital, and Ray Dalio's Bridgewater Associates.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Alexandria Real Estate Equities Inc (NYSE:ARE) but similarly valued. These stocks are Yum China Holdings, Inc. (NYSE:YUMC), Loews Corporation (NYSE:L), Nucor Corporation (NYSE:NUE), and Arthur J. Gallagher & Co. (NYSE:AJG). This group of stocks' market values match ARE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YUMC,28,448229,-2 L,21,258588,1 NUE,22,237610,-4 AJG,25,318008,-3 Average,24,315609,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $316 million. That figure was $485 million in ARE's case. Yum China Holdings, Inc. (NYSE:YUMC) is the most popular stock in this table. On the other hand Loews Corporation (NYSE:L) is the least popular one with only 21 bullish hedge fund positions. Alexandria Real Estate Equities Inc (NYSE:ARE) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on ARE as the stock returned 9.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.