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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Safety, Income & Growth Inc. (NYSE:SAFE).
Is Safety, Income & Growth Inc. (NYSE:SAFE) undervalued? Money managers are in a pessimistic mood. The number of bullish hedge fund bets decreased by 1 recently. Our calculations also showed that SAFE 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Louis Navellier of Navellier & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we're going to view the new hedge fund action encompassing Safety, Income & Growth Inc. (NYSE:SAFE).
Hedge fund activity in Safety, Income & Growth Inc. (NYSE:SAFE)
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. By comparison, 2 hedge funds held shares or bullish call options in SAFE a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, One Fin Capital Management was the largest shareholder of Safety, Income & Growth Inc. (NYSE:SAFE), with a stake worth $10.1 million reported as of the end of September. Trailing One Fin Capital Management was Pinz Capital, which amassed a stake valued at $2 million. Millennium Management, Two Sigma Advisors, and Navellier & Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position One Fin Capital Management allocated the biggest weight to Safety, Income & Growth Inc. (NYSE:SAFE), around 5.49% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, dishing out 0.75 percent of its 13F equity portfolio to SAFE.
Seeing as Safety, Income & Growth Inc. (NYSE:SAFE) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of money managers that decided to sell off their entire stakes in the third quarter. Interestingly, David Harding's Winton Capital Management dumped the biggest position of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $2.1 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $0.9 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Safety, Income & Growth Inc. (NYSE:SAFE) but similarly valued. These stocks are BMC Stock Holdings, Inc. (NASDAQ:BMCH), Bloomin' Brands Inc (NASDAQ:BLMN), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), and Magellan Health Inc (NASDAQ:MGLN). This group of stocks' market values resemble SAFE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BMCH,29,335228,0 BLMN,18,220934,0 KTOS,16,39987,-6 MGLN,19,381495,1 Average,20.5,244411,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $16 million in SAFE's case. BMC Stock Holdings, Inc. (NASDAQ:BMCH) is the most popular stock in this table. On the other hand Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Safety, Income & Growth Inc. (NYSE:SAFE) is even less popular than KTOS. Hedge funds clearly dropped the ball on SAFE as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on SAFE as the stock returned 22.4% during the same time period and outperformed the market by an even larger margin.
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.