World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Is TIER REIT, Inc. (NYSE:TIER) a first-rate investment today? The best stock pickers are taking a bullish view. The number of bullish hedge fund bets moved up by 5 recently. Our calculations also showed that TIER isn't among the 30 most popular stocks among hedge funds.
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 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.
We're going to view the key hedge fund action regarding TIER REIT, Inc. (NYSE:TIER).
How have hedgies been trading TIER REIT, Inc. (NYSE:TIER)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 71% from the fourth quarter of 2018. By comparison, 5 hedge funds held shares or bullish call options in TIER a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of TIER REIT, Inc. (NYSE:TIER), with a stake worth $48.7 million reported as of the end of March. Trailing Renaissance Technologies was Water Island Capital, which amassed a stake valued at $21.3 million. Alpine Associates, Waterfront Capital Partners, and Carlson Capital were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Water Island Capital, managed by John Orrico, created the largest position in TIER REIT, Inc. (NYSE:TIER). Water Island Capital had $21.3 million invested in the company at the end of the quarter. Robert Emil Zoellner's Alpine Associates also initiated a $14 million position during the quarter. The other funds with new positions in the stock are Eduardo Abush's Waterfront Capital Partners, Clint Carlson's Carlson Capital, and Ken Griffin's Citadel Investment Group.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as TIER REIT, Inc. (NYSE:TIER) but similarly valued. We will take a look at Knowles Corp (NYSE:KN), Marcus & Millichap Inc (NYSE:MMI), Arch Coal, Inc. (NYSE:ARCH), and Mueller Water Products, Inc. (NYSE:MWA). All of these stocks' market caps match TIER's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KN,17,223503,-7 MMI,12,132716,-1 ARCH,28,326749,3 MWA,18,211351,-6 Average,18.75,223580,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $224 million. That figure was $127 million in TIER's case. Arch Coal, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand Marcus & Millichap Inc (NYSE:MMI) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks TIER REIT, Inc. (NYSE:TIER) is even less popular than MMI. Hedge funds dodged a bullet by taking a bearish stance towards TIER. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately TIER wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TIER investors were disappointed as the stock returned 0.8% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.