How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Monmouth Real Estate Investment Corporation (NYSE:MNR).
Monmouth Real Estate Investment Corporation (NYSE:MNR) was in 10 hedge funds' portfolios at the end of the third quarter of 2019. MNR shareholders have witnessed a decrease in support from the world's most elite money managers recently. There were 13 hedge funds in our database with MNR positions at the end of the previous quarter. Our calculations also showed that MNR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to check out the fresh hedge fund action surrounding Monmouth Real Estate Investment Corporation (NYSE:MNR).
What have hedge funds been doing with Monmouth Real Estate Investment Corporation (NYSE:MNR)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MNR over the last 17 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Monmouth Real Estate Investment Corporation (NYSE:MNR), which was worth $42.8 million at the end of the third quarter. On the second spot was Millennium Management which amassed $14.6 million worth of shares. Two Sigma Advisors, Citadel Investment Group, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Monmouth Real Estate Investment Corporation (NYSE:MNR), around 0.04% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to MNR.
Due to the fact that Monmouth Real Estate Investment Corporation (NYSE:MNR) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few money managers that elected to cut their full holdings in the third quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management dumped the largest position of the "upper crust" of funds followed by Insider Monkey, comprising close to $1.7 million in stock, and Matthew Tewksbury's Stevens Capital Management was right behind this move, as the fund dropped about $0.6 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 3 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Monmouth Real Estate Investment Corporation (NYSE:MNR). We will take a look at Industrial Logistics Properties Trust (NASDAQ:ILPT), BioTelemetry, Inc. (NASDAQ:BEAT), NIC Inc. (NASDAQ:EGOV), and Arcos Dorados Holdings Inc (NYSE:ARCO). This group of stocks' market valuations are closest to MNR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ILPT,11,83064,2 BEAT,16,39830,0 EGOV,20,113155,3 ARCO,14,118648,0 Average,15.25,88674,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $74 million in MNR's case. NIC Inc. (NASDAQ:EGOV) is the most popular stock in this table. On the other hand Industrial Logistics Properties Trust (NASDAQ:ILPT) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Monmouth Real Estate Investment Corporation (NYSE:MNR) is even less popular than ILPT. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on MNR, though not to the same extent, as the stock returned 7.6% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.