It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like BRT Apartments Corp. (NYSE:BRT).
Is BRT Apartments Corp. (NYSE:BRT) going to take off soon? Hedge funds are becoming more confident. The number of long hedge fund bets improved by 1 lately. Our calculations also showed that BRT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_758440" align="aligncenter" width="450"] Michael Price of MFP Investors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to check out the recent hedge fund action encompassing BRT Apartments Corp. (NYSE:BRT).
What have hedge funds been doing with BRT Apartments Corp. (NYSE:BRT)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BRT over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the biggest position in BRT Apartments Corp. (NYSE:BRT), worth close to $9.2 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by MFP Investors, led by Michael Price, holding a $0.9 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish include Israel Englander's Millennium Management, David Harding's Winton Capital Management and Thomas Bailard's Bailard Inc. In terms of the portfolio weights assigned to each position MFP Investors allocated the biggest weight to BRT Apartments Corp. (NYSE:BRT), around 0.13% of its 13F portfolio. Bailard Inc is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to BRT.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Winton Capital Management, managed by David Harding, created the most outsized position in BRT Apartments Corp. (NYSE:BRT). Winton Capital Management had $0.5 million invested in the company at the end of the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as BRT Apartments Corp. (NYSE:BRT) but similarly valued. These stocks are Workhorse Group, Inc. (NASDAQ:WKHS), Xenon Pharmaceuticals Inc (NASDAQ:XENE), VolitionRX Limited (NYSE:VNRX), and Provident Bancorp, Inc. (NASDAQ:PVBC). This group of stocks' market valuations are similar to BRT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WKHS,5,7670,2 XENE,16,101425,-1 VNRX,1,378,0 PVBC,3,7158,1 Average,6.25,29158,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $12 million in BRT's case. Xenon Pharmaceuticals Inc (NASDAQ:XENE) is the most popular stock in this table. On the other hand VolitionRX Limited (NYSE:VNRX) is the least popular one with only 1 bullish hedge fund positions. BRT Apartments Corp. (NYSE:BRT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on BRT as the stock returned 25.9% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.