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Hedge Funds Sold Public Storage (PSA) A Little Bit Too Early

Nina Todic

Does Public Storage (NYSE:PSA) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Public Storage (NYSE:PSA) investors should be aware of a decrease in hedge fund sentiment lately. Our calculations also showed that PSA isn't among the 30 most popular stocks among hedge funds (see the video below).

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 go over the recent hedge fund action surrounding Public Storage (NYSE:PSA).

What does smart money think about Public Storage (NYSE:PSA)?

Heading into the third quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in PSA a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

No of Hedge Funds with PSA Positions

Of the funds tracked by Insider Monkey, Jim Simons's Renaissance Technologies has the number one position in Public Storage (NYSE:PSA), worth close to $349.7 million, amounting to 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Alkeon Capital Management, led by Panayotis Takis Sparaggis, holding a $178.6 million call position; 0.7% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism include Cliff Asness's AQR Capital Management, Jeffrey Furber's AEW Capital Management and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Due to the fact that Public Storage (NYSE:PSA) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of hedge funds who were dropping their positions entirely by the end of the second quarter. Intriguingly, Matthew Tewksbury's Stevens Capital Management said goodbye to the largest stake of the "upper crust" of funds monitored by Insider Monkey, worth close to $6.4 million in stock, and Josh Donfeld and David Rogers's Castle Hook Partners was right behind this move, as the fund cut about $3.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 5 funds by the end of the second quarter.

Let's check out hedge fund activity in other stocks similar to Public Storage (NYSE:PSA). These stocks are Analog Devices, Inc. (NASDAQ:ADI), AFLAC Incorporated (NYSE:AFL), Keurig Dr Pepper Inc. (NYSE:KDP), and Applied Materials, Inc. (NASDAQ:AMAT). This group of stocks' market valuations match PSA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADI,44,2910043,4 AFL,23,727206,-7 KDP,21,699540,-1 AMAT,44,1996991,2 Average,33,1583445,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1583 million. That figure was $824 million in PSA's case. Analog Devices, Inc. (NASDAQ:ADI) is the most popular stock in this table. On the other hand Keurig Dr Pepper Inc. (NYSE:KDP) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Public Storage (NYSE:PSA) is even less popular than KDP. 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 PSA, though not to the same extent, as the stock returned 3.8% during the third quarter and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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