Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' stock picks rather than directly investing in hedge funds. 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 Liberty Property Trust (NYSE:LPT).
Is Liberty Property Trust (NYSE:LPT) a cheap investment now? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets went up by 1 in recent months. Our calculations also showed that LPT isn't among the 30 most popular stocks among hedge funds. LPT was in 19 hedge funds' portfolios at the end of December. There were 18 hedge funds in our database with LPT positions at the end of the previous quarter.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a gander at the latest hedge fund action regarding Liberty Property Trust (NYSE:LPT).
Hedge fund activity in Liberty Property Trust (NYSE:LPT)
Heading into the first quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in LPT a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Zimmer Partners held the most valuable stake in Liberty Property Trust (NYSE:LPT), which was worth $53.9 million at the end of the third quarter. On the second spot was Carlson Capital which amassed $26.7 million worth of shares. Moreover, Waterfront Capital Partners, Renaissance Technologies, and Land & Buildings Investment Management were also bullish on Liberty Property Trust (NYSE:LPT), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, some big names were leading the bulls' herd. Long Pond Capital, managed by John Khoury, assembled the largest position in Liberty Property Trust (NYSE:LPT). Long Pond Capital had $6.7 million invested in the company at the end of the quarter. James Dondero's Highland Capital Management also made a $0.8 million investment in the stock during the quarter. The other funds with brand new LPT positions are Ray Dalio's Bridgewater Associates, Matthew Hulsizer's PEAK6 Capital Management, and Andrew Sandler's Sandler Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Liberty Property Trust (NYSE:LPT) but similarly valued. We will take a look at Kimco Realty Corp (NYSE:KIM), CDK Global Inc (NASDAQ:CDK), PagSeguro Digital Ltd. (NYSE:PAGS), and Autoliv Inc. (NYSE:ALV). This group of stocks' market valuations resemble LPT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KIM,16,79011,-1 CDK,25,442766,-5 PAGS,24,905865,-15 ALV,13,436318,0 Average,19.5,465990,-5.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $466 million. That figure was $176 million in LPT's case. CDK Global Inc (NASDAQ:CDK) is the most popular stock in this table. On the other hand Autoliv Inc. (NYSE:ALV) is the least popular one with only 13 bullish hedge fund positions. Liberty Property Trust (NYSE:LPT) 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 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on LPT, though not to the same extent, as the stock returned 18% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.