Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards First Industrial Realty Trust, Inc. (NYSE:FR).
First Industrial Realty Trust, Inc. (NYSE:FR) was in 19 hedge funds' portfolios at the end of December. FR has seen an increase in enthusiasm from smart money recently. There were 17 hedge funds in our database with FR holdings at the end of the previous quarter. Our calculations also showed that FR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's analyze the latest hedge fund action surrounding First Industrial Realty Trust, Inc. (NYSE:FR).
What have hedge funds been doing with First Industrial Realty Trust, Inc. (NYSE:FR)?
Heading into the first quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in FR a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in First Industrial Realty Trust, Inc. (NYSE:FR) was held by Renaissance Technologies, which reported holding $52.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $50.3 million position. Other investors bullish on the company included Waterfront Capital Partners, Third Avenue Management, and Winton Capital Management. In terms of the portfolio weights assigned to each position Waterfront Capital Partners allocated the biggest weight to First Industrial Realty Trust, Inc. (NYSE:FR), around 3.55% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, designating 2.31 percent of its 13F equity portfolio to FR.
Now, key money managers have jumped into First Industrial Realty Trust, Inc. (NYSE:FR) headfirst. Winton Capital Management, managed by David Harding, initiated the biggest position in First Industrial Realty Trust, Inc. (NYSE:FR). Winton Capital Management had $14.8 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $2.2 million investment in the stock during the quarter. The following funds were also among the new FR investors: Minhua Zhang's Weld Capital Management, Paul Tudor Jones's Tudor Investment Corp, and Qing Li's Sciencast Management.
Let's go over hedge fund activity in other stocks similar to First Industrial Realty Trust, Inc. (NYSE:FR). These stocks are Macy's, Inc. (NYSE:M), Etsy Inc (NASDAQ:ETSY), Healthequity Inc (NASDAQ:HQY), and ServiceMaster Global Holdings Inc (NYSE:SERV). This group of stocks' market caps resemble FR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position M,32,861446,0 ETSY,46,814287,-3 HQY,23,163737,1 SERV,42,1197647,13 Average,35.75,759279,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $759 million. That figure was $205 million in FR's case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand Healthequity Inc (NASDAQ:HQY) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks First Industrial Realty Trust, Inc. (NYSE:FR) is even less popular than HQY. Hedge funds dodged a bullet by taking a bearish stance towards FR. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately FR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FR investors were disappointed as the stock returned -30.8% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.