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Hedge Funds Have Never Been More Bullish On Innovative Industrial Properties, Inc. (IIPR)

Reymerlyn Martin

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 Innovative Industrial Properties, Inc. (NYSE:IIPR).

Innovative Industrial Properties, Inc. (NYSE:IIPR) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds' portfolios at the end of December. At the end of this article we will also compare IIPR to other stocks including On Deck Capital Inc (NYSE:ONDK), Ready Capital Corporation (NYSE:RC), and Mesoblast Limited (NASDAQ:MESO) to get a better sense of its popularity.

To most shareholders, hedge funds are assumed to be slow, outdated investment vehicles of yesteryear. While there are over 8000 funds trading at the moment, We hone in on the elite of this group, approximately 750 funds. These hedge fund managers oversee bulk of the hedge fund industry's total capital, and by paying attention to their finest investments, Insider Monkey has brought to light a few investment strategies that have historically outrun the broader indices. Insider Monkey's flagship hedge fund strategy exceeded the S&P 500 index by nearly 5 percentage points annually since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Carlo Cannell

Let's take a glance at the fresh hedge fund action encompassing Innovative Industrial Properties, Inc. (NYSE:IIPR).

What does the smart money think about Innovative Industrial Properties, Inc. (NYSE:IIPR)?

At the end of the fourth quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IIPR over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

IIPR_may2019

Of the funds tracked by Insider Monkey, Driehaus Capital, managed by Richard Driehaus, holds the biggest position in Innovative Industrial Properties, Inc. (NYSE:IIPR). Driehaus Capital has a $7.5 million position in the stock, comprising 0.3% of its 13F portfolio. On Driehaus Capital's heels is J. Carlo Cannell of Cannell Capital, with a $5.1 million position; 1.4% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish consist of Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Jim Simons's Renaissance Technologies.

Because Innovative Industrial Properties, Inc. (NYSE:IIPR) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of money managers who sold off their full holdings last quarter. Intriguingly, Parag Vora's HG Vora Capital Management cut the largest investment of the 700 funds tracked by Insider Monkey, worth close to $9.6 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund dropped about $0.4 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Innovative Industrial Properties, Inc. (NYSE:IIPR). These stocks are On Deck Capital Inc (NYSE:ONDK), Ready Capital Corporation (NYSE:RC), Mesoblast Limited (NASDAQ:MESO), and Team, Inc. (NYSE:TISI). This group of stocks' market valuations are similar to IIPR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ONDK,20,119246,-1 RC,6,35817,2 MESO,1,267,-1 TISI,12,78837,0 Average,9.75,58542,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $18 million in IIPR's case. On Deck Capital Inc (NYSE:ONDK) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 1 bullish hedge fund positions. Innovative Industrial Properties, Inc. (NYSE:IIPR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on IIPR as the stock returned 78.5% and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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