Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Pennsylvania Real Estate Investment Trust (NYSE:PEI).
Pennsylvania Real Estate Investment Trust (NYSE:PEI) was in 15 hedge funds' portfolios at the end of the fourth quarter of 2018. PEI shareholders have witnessed an increase in hedge fund interest recently. There were 14 hedge funds in our database with PEI holdings at the end of the previous quarter. Our calculations also showed that PEI isn't among the 30 most popular stocks among hedge funds.
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 glance at the recent hedge fund action regarding Pennsylvania Real Estate Investment Trust (NYSE:PEI).
How have hedgies been trading Pennsylvania Real Estate Investment Trust (NYSE:PEI)?
At Q4's end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PEI over the last 14 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, AEW Capital Management was the largest shareholder of Pennsylvania Real Estate Investment Trust (NYSE:PEI), with a stake worth $20.1 million reported as of the end of December. Trailing AEW Capital Management was Balyasny Asset Management, which amassed a stake valued at $5 million. Moore Global Investments, King Street Capital, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers were leading the bulls' herd. Moore Global Investments, managed by Louis Bacon, initiated the largest position in Pennsylvania Real Estate Investment Trust (NYSE:PEI). Moore Global Investments had $3.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $0.8 million position during the quarter. The only other fund with a brand new PEI position is Joe DiMenna's ZWEIG DIMENNA PARTNERS.
Let's check out hedge fund activity in other stocks similar to Pennsylvania Real Estate Investment Trust (NYSE:PEI). We will take a look at eXp World Holdings, Inc. (NASDAQ:EXPI), e.l.f. Beauty, Inc. (NYSE:ELF), Mitek Systems, Inc. (NASDAQ:MITK), and Scorpio Bulkers Inc (NYSE:SALT). This group of stocks' market valuations are similar to PEI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EXPI,7,2092,2 ELF,17,77142,6 MITK,15,31983,3 SALT,9,57971,-1 Average,12,42297,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $37 million in PEI's case. e.l.f. Beauty, Inc. (NYSE:ELF) is the most popular stock in this table. On the other hand eXp World Holdings, Inc. (NASDAQ:EXPI) is the least popular one with only 7 bullish hedge fund positions. Pennsylvania Real Estate Investment Trust (NYSE:PEI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately PEI wasn't nearly as popular as these 15 stock and hedge funds that were betting on PEI were disappointed as the stock returned -1.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.