Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Acadia Realty Trust (NYSE:AKR).
Acadia Realty Trust (NYSE:AKR) was in 13 hedge funds' portfolios at the end of December. AKR has experienced a decrease in enthusiasm from smart money of late. There were 16 hedge funds in our database with AKR positions at the end of the previous quarter. Our calculations also showed that AKR 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_758450" align="aligncenter" width="399"] Martin Whitman of Third Avenue Management[/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. With all of this in mind let's go over the key hedge fund action surrounding Acadia Realty Trust (NYSE:AKR).
How are hedge funds trading Acadia Realty Trust (NYSE:AKR)?
At Q4's end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AKR over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Third Avenue Management was the largest shareholder of Acadia Realty Trust (NYSE:AKR), with a stake worth $22.6 million reported as of the end of September. Trailing Third Avenue Management was Winton Capital Management, which amassed a stake valued at $12.5 million. Citadel Investment Group, Millennium Management, and D E Shaw 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 Third Avenue Management allocated the biggest weight to Acadia Realty Trust (NYSE:AKR), around 2.24% of its 13F portfolio. Hill Winds Capital is also relatively very bullish on the stock, setting aside 2.19 percent of its 13F equity portfolio to AKR.
Seeing as Acadia Realty Trust (NYSE:AKR) has experienced a decline in interest from the smart money, we can see that there exists a select few funds that slashed their entire stakes last quarter. Intriguingly, Ken Fisher's Fisher Asset Management sold off the biggest investment of all the hedgies watched by Insider Monkey, totaling an estimated $1.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund cut about $0.7 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Acadia Realty Trust (NYSE:AKR). These stocks are Kinsale Capital Group, Inc. (NASDAQ:KNSL), Plexus Corp. (NASDAQ:PLXS), SPX Corporation (NYSE:SPXC), and Northwest Natural Holding Company (NYSE:NWN). This group of stocks' market values match AKR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KNSL,11,24521,-1 PLXS,24,119833,16 SPXC,19,121935,0 NWN,17,97409,-1 Average,17.75,90925,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $82 million in AKR's case. Plexus Corp. (NASDAQ:PLXS) is the most popular stock in this table. On the other hand Kinsale Capital Group, Inc. (NASDAQ:KNSL) is the least popular one with only 11 bullish hedge fund positions. Acadia Realty Trust (NYSE:AKR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 4.2 percentage points. Unfortunately AKR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AKR investors were disappointed as the stock returned -56.7% during the same time period 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 most of these stocks already outperformed the market in 2020. 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.