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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 (read our latest 10 coronavirus predictions).
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 Sun Communities Inc (NYSE:SUI).
Is Sun Communities Inc (NYSE:SUI) a buy right now? Investors who are in the know are taking an optimistic view. The number of long hedge fund bets inched up by 13 recently. Our calculations also showed that SUI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 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.
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Ken Griffin of Citadel Investment Group[/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. With all of this in mind let's review the latest hedge fund action surrounding Sun Communities Inc (NYSE:SUI).
How are hedge funds trading Sun Communities Inc (NYSE:SUI)?
At Q4's end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 72% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SUI over the last 18 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in Sun Communities Inc (NYSE:SUI). Citadel Investment Group has a $132.6 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Israel Englander of Millennium Management, with a $79.2 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism consist of Renaissance Technologies, Brad Dunkley and Blair Levinsky's Waratah Capital Advisors and Eduardo Abush's Waterfront Capital Partners. In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Sun Communities Inc (NYSE:SUI), around 4.1% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, dishing out 3.73 percent of its 13F equity portfolio to SUI.
Now, specific money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the largest position in Sun Communities Inc (NYSE:SUI). Balyasny Asset Management had $10.9 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $2.6 million investment in the stock during the quarter. The other funds with brand new SUI positions are Michael Gelband's ExodusPoint Capital, Donald Sussman's Paloma Partners, and Ran Pang's Quantamental Technologies.
Let's check out hedge fund activity in other stocks similar to Sun Communities Inc (NYSE:SUI). These stocks are Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Leidos Holdings Inc (NYSE:LDOS), W.P. Carey Inc. REIT (NYSE:WPC), and Gartner Inc (NYSE:IT). All of these stocks' market caps resemble SUI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TTWO,59,1105651,-1 LDOS,27,467199,2 WPC,21,88287,6 IT,26,727134,4 Average,33.25,597068,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $597 million. That figure was $399 million in SUI's case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand W.P. Carey Inc. REIT (NYSE:WPC) is the least popular one with only 21 bullish hedge fund positions. Sun Communities Inc (NYSE:SUI) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on SUI as the stock returned -20.2% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.