Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Empire State Realty Trust Inc (NYSE:ESRT) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds' portfolios at the end of December. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Knight Transportation Inc. (NYSE:KNX), Genesee & Wyoming Inc (NYSE:GWR), and AGCO Corporation (NYSE:AGCO) to gather more data points.
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 32 percentage points since May 2014 through March 12, 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.
We're going to check out the new hedge fund action regarding Empire State Realty Trust Inc (NYSE:ESRT).
How have hedgies been trading Empire State Realty Trust Inc (NYSE:ESRT)?
Heading into the first quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ESRT over the last 14 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Empire State Realty Trust Inc (NYSE:ESRT), with a stake worth $54.9 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $47.5 million. Two Sigma Advisors, Balyasny Asset Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Empire State Realty Trust Inc (NYSE:ESRT) has experienced declining sentiment from the smart money, it's easy to see that there lies a certain "tier" of fund managers that slashed their full holdings in the third quarter. Interestingly, John Khoury's Long Pond Capital sold off the biggest position of the "upper crust" of funds watched by Insider Monkey, valued at close to $39.8 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also sold off its stock, about $0.5 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Empire State Realty Trust Inc (NYSE:ESRT) but similarly valued. These stocks are Knight Transportation Inc. (NYSE:KNX), Genesee & Wyoming Inc (NYSE:GWR), AGCO Corporation (NYSE:AGCO), and Lazard Ltd (NYSE:LAZ). This group of stocks' market values match ESRT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KNX,26,299335,-5 GWR,18,322177,7 AGCO,32,238888,11 LAZ,16,481052,-1 Average,23,335363,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $335 million. That figure was $160 million in ESRT's case. AGCO Corporation (NYSE:AGCO) is the most popular stock in this table. On the other hand Lazard Ltd (NYSE:LAZ) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Empire State Realty Trust Inc (NYSE:ESRT) is even less popular than LAZ. Hedge funds dodged a bullet by taking a bearish stance towards ESRT. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ESRT wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); ESRT investors were disappointed as the stock returned 6.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.