Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Federal Realty Investment Trust (NYSE:FRT).
Hedge fund interest in Federal Realty Investment Trust (NYSE:FRT) 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 Equity Lifestyle Properties, Inc. (NYSE:ELS), Braskem SA (NYSE:BAK), and Sun Communities Inc (NYSE:SUI) to gather more data points.
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 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 take a glance at the new hedge fund action encompassing Federal Realty Investment Trust (NYSE:FRT).
How are hedge funds trading Federal Realty Investment Trust (NYSE:FRT)?
At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2018. By comparison, 17 hedge funds held shares or bullish call options in FRT a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AEW Capital Management was the largest shareholder of Federal Realty Investment Trust (NYSE:FRT), with a stake worth $83.1 million reported as of the end of March. Trailing AEW Capital Management was Capital Growth Management, which amassed a stake valued at $35.2 million. Citadel Investment Group, Millennium Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Since Federal Realty Investment Trust (NYSE:FRT) has faced falling interest from the smart money, it's easy to see that there exists a select few hedgies that elected to cut their positions entirely in the third quarter. Interestingly, Greg Poole's Echo Street Capital Management dumped the biggest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $10.1 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dumped its stock, about $3.3 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 now take a look at hedge fund activity in other stocks similar to Federal Realty Investment Trust (NYSE:FRT). These stocks are Equity Lifestyle Properties, Inc. (NYSE:ELS), Braskem SA (NYSE:BAK), Sun Communities Inc (NYSE:SUI), and Agnico Eagle Mines Limited (NYSE:AEM). This group of stocks' market caps are closest to FRT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ELS,15,571959,0 BAK,12,310632,3 SUI,18,412771,-4 AEM,24,266152,-1 Average,17.25,390379,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $390 million. That figure was $226 million in FRT's case. Agnico Eagle Mines Limited (NYSE:AEM) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 12 bullish hedge fund positions. Federal Realty Investment Trust (NYSE:FRT) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately FRT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FRT investors were disappointed as the stock returned -1.8% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.