You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
UDR, Inc. (NYSE:UDR) was in 16 hedge funds' portfolios at the end of the second quarter of 2019. UDR investors should pay attention to a decrease in hedge fund interest of late. There were 18 hedge funds in our database with UDR holdings at the end of the previous quarter. Our calculations also showed that UDR isn't among the 30 most popular stocks among hedge funds (see the video below). 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 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.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the latest hedge fund action surrounding UDR, Inc. (NYSE:UDR).
How are hedge funds trading UDR, Inc. (NYSE:UDR)?
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in UDR a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the most valuable position in UDR, Inc. (NYSE:UDR). Renaissance Technologies has a $411.9 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Zimmer Partners, led by Stuart J. Zimmer, holding a $99.1 million position; 1% of its 13F portfolio is allocated to the company. Other peers that hold long positions include Dmitry Balyasny's Balyasny Asset Management, Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group.
Since UDR, Inc. (NYSE:UDR) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of funds that elected to cut their entire stakes heading into Q3. At the top of the heap, Benjamin A. Smith's Laurion Capital Management said goodbye to the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at about $1.8 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund sold off about $1.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as UDR, Inc. (NYSE:UDR) but similarly valued. These stocks are Expeditors International of Washington, Inc. (NASDAQ:EXPD), Steris Plc (NYSE:STE), Teck Resources Ltd (NYSE:TECK), and Varian Medical Systems, Inc. (NYSE:VAR). This group of stocks' market valuations are closest to UDR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EXPD,25,398382,-5 STE,22,287399,1 TECK,23,915558,-4 VAR,25,621271,-7 Average,23.75,555653,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $556 million. That figure was $646 million in UDR's case. Expeditors International of Washington, Inc. (NASDAQ:EXPD) is the most popular stock in this table. On the other hand Steris Plc (NYSE:STE) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks UDR, Inc. (NYSE:UDR) is even less popular than STE. Hedge funds clearly dropped the ball on UDR 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on UDR as the stock returned 8.8% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.