Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Hedge fund interest in Liberty Property Trust (NYSE:LPT) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LPT to other stocks including Exelixis, Inc. (NASDAQ:EXEL), Mobile TeleSystems Public Joint Stock Company. (NYSE:MBT), and Zillow Group Inc (NASDAQ:Z) to get a better sense of its popularity.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to review the new hedge fund action encompassing Liberty Property Trust (NYSE:LPT).
What have hedge funds been doing with Liberty Property Trust (NYSE:LPT)?
Heading into the second quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in LPT a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Liberty Property Trust (NYSE:LPT) was held by Zimmer Partners, which reported holding $121.1 million worth of stock at the end of March. It was followed by Land & Buildings Investment Management with a $30 million position. Other investors bullish on the company included Carlson Capital, Renaissance Technologies, and Waterfront Capital Partners.
Since Liberty Property Trust (NYSE:LPT) has witnessed falling interest from the smart money, logic holds that there lies a certain "tier" of funds that decided to sell off their entire stakes by the end of the third quarter. It's worth mentioning that John Khoury's Long Pond Capital said goodbye to the biggest stake of the "upper crust" of funds tracked by Insider Monkey, worth about $6.7 million in stock. Greg Poole's fund, Echo Street Capital Management, also cut its stock, about $4.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine 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 Exelixis, Inc. (NASDAQ:EXEL), Mobile TeleSystems Public Joint Stock Company. (NYSE:MBT), Zillow Group Inc (NASDAQ:Z), and Tripadvisor Inc (NASDAQ:TRIP). This group of stocks' market values match LPT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EXEL,24,788343,0 MBT,13,321821,1 Z,33,623335,10 TRIP,27,1354971,-2 Average,24.25,772118,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $772 million. That figure was $215 million in LPT's case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Mobile TeleSystems Public Joint Stock Company. (NYSE:MBT) 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LPT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LPT investors were disappointed as the stock returned -2.6% 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.