We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Agree Realty Corporation (NYSE:ADC).
Agree Realty Corporation (NYSE:ADC) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. ADC was in 9 hedge funds' portfolios at the end of the third quarter of 2019. There were 11 hedge funds in our database with ADC holdings at the end of the previous quarter. Our calculations also showed that ADC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to go over the latest hedge fund action regarding Agree Realty Corporation (NYSE:ADC).
What does smart money think about Agree Realty Corporation (NYSE:ADC)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ADC over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Agree Realty Corporation (NYSE:ADC), which was worth $69.4 million at the end of the third quarter. On the second spot was Millennium Management which amassed $25.9 million worth of shares. D E Shaw, Winton Capital Management, and AQR Capital Management 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 Millennium Management allocated the biggest weight to Agree Realty Corporation (NYSE:ADC), around 0.04% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to ADC.
Since Agree Realty Corporation (NYSE:ADC) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few money managers who were dropping their positions entirely by the end of the third quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management said goodbye to the largest investment of the 750 funds monitored by Insider Monkey, worth an estimated $9 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also dumped its stock, about $1.4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Agree Realty Corporation (NYSE:ADC) but similarly valued. These stocks are Alkermes Plc (NASDAQ:ALKS), Lithia Motors Inc (NYSE:LAD), Grocery Outlet Holding Corp. (NASDAQ:GO), and Mirati Therapeutics, Inc. (NASDAQ:MRTX). This group of stocks' market caps resemble ADC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALKS,24,360734,1 LAD,24,628887,3 GO,15,63095,-6 MRTX,33,1154565,6 Average,24,551820,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $552 million. That figure was $113 million in ADC's case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand Grocery Outlet Holding Corp. (NASDAQ:GO) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Agree Realty Corporation (NYSE:ADC) is even less popular than GO. Hedge funds dodged a bullet by taking a bearish stance towards ADC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ADC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ADC investors were disappointed as the stock returned 2.2% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.