With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Essential Properties Realty Trust, Inc. (NYSE:EPRT).
Hedge fund interest in Essential Properties Realty Trust, Inc. (NYSE:EPRT) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Rent-A-Center Inc (NASDAQ:RCII), World Acceptance Corp. (NASDAQ:WRLD), and Tennant Company (NYSE:TNC) 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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's view the key hedge fund action surrounding Essential Properties Realty Trust, Inc. (NYSE:EPRT).
How are hedge funds trading Essential Properties Realty Trust, Inc. (NYSE:EPRT)?
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in EPRT a year ago. 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, Citadel Investment Group was the largest shareholder of Essential Properties Realty Trust, Inc. (NYSE:EPRT), with a stake worth $41.3 million reported as of the end of March. Trailing Citadel Investment Group was Carlson Capital, which amassed a stake valued at $31.8 million. Millennium Management, Long Pond Capital, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Since Essential Properties Realty Trust, Inc. (NYSE:EPRT) has faced bearish sentiment from hedge fund managers, it's safe to say that there were a few funds who sold off their entire stakes heading into Q3. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management sold off the largest position of the 700 funds monitored by Insider Monkey, comprising an estimated $10.7 million in stock, and Richard Driehaus's Driehaus Capital was right behind this move, as the fund dropped about $3.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Essential Properties Realty Trust, Inc. (NYSE:EPRT). These stocks are Rent-A-Center Inc (NASDAQ:RCII), World Acceptance Corp. (NASDAQ:WRLD), Tennant Company (NYSE:TNC), and Trupanion Inc (NASDAQ:TRUP). This group of stocks' market valuations match EPRT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RCII,21,302579,2 WRLD,13,239202,-3 TNC,15,83127,5 TRUP,13,154788,3 Average,15.5,194924,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $127 million in EPRT's case. Rent-A-Center Inc (NASDAQ:RCII) is the most popular stock in this table. On the other hand World Acceptance Corp. (NASDAQ:WRLD) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Essential Properties Realty Trust, Inc. (NYSE:EPRT) is even less popular than WRLD. Hedge funds clearly dropped the ball on EPRT 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on EPRT as the stock returned 9.6% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.