The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Piedmont Office Realty Trust, Inc. (NYSE:PDM) from the perspective of those elite funds.
Piedmont Office Realty Trust, Inc. (NYSE:PDM) investors should pay attention to a decrease in activity from the world's largest hedge funds recently. Our calculations also showed that PDM isn't among the 30 most popular stocks among hedge funds.
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' 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.
We're going to take a look at the key hedge fund action encompassing Piedmont Office Realty Trust, Inc. (NYSE:PDM).
How are hedge funds trading Piedmont Office Realty Trust, Inc. (NYSE:PDM)?
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the fourth quarter of 2018. On the other hand, there were a total of 11 hedge funds with a bullish position in PDM a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Piedmont Office Realty Trust, Inc. (NYSE:PDM), which was worth $67.9 million at the end of the first quarter. On the second spot was AEW Capital Management which amassed $54.5 million worth of shares. Moreover, GLG Partners, Citadel Investment Group, and Millennium Management were also bullish on Piedmont Office Realty Trust, Inc. (NYSE:PDM), allocating a large percentage of their portfolios to this stock.
Due to the fact that Piedmont Office Realty Trust, Inc. (NYSE:PDM) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of hedgies who sold off their positions entirely heading into Q3. It's worth mentioning that David Costen Haley's HBK Investments cut the largest stake of the 700 funds monitored by Insider Monkey, totaling about $0.4 million in stock. Michael Gelband's fund, ExodusPoint Capital, also said goodbye to its stock, about $0.3 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds heading into Q3.
Let's check out hedge fund activity in other stocks similar to Piedmont Office Realty Trust, Inc. (NYSE:PDM). These stocks are Nextera Energy Partners LP (NYSE:NEP), Terreno Realty Corporation (NYSE:TRNO), Alliance Resource Partners, L.P. (NASDAQ:ARLP), and California Water Service Group (NYSE:CWT). This group of stocks' market valuations match PDM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NEP,9,15427,-3 TRNO,13,63355,3 ARLP,8,108477,0 CWT,8,22601,0 Average,9.5,52465,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $147 million in PDM's case. Terreno Realty Corporation (NYSE:TRNO) is the most popular stock in this table. On the other hand Alliance Resource Partners, L.P. (NASDAQ:ARLP) is the least popular one with only 8 bullish hedge fund positions. Piedmont Office Realty Trust, Inc. (NYSE:PDM) 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 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 PDM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PDM were disappointed as the stock returned 1.5% during the same 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.