Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards QTS Realty Trust Inc (NYSE:QTS) to find out whether there were any major changes in hedge funds' views.
Is QTS Realty Trust Inc (NYSE:QTS) a buy right now? Investors who are in the know were getting less bullish. The number of bullish hedge fund positions retreated by 1 in recent months. QTS Realty Trust Inc (NYSE:QTS) was in 22 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 29. Our calculations also showed that QTS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 23 hedge funds in our database with QTS positions at the end of the fourth quarter.
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 S&P 500 ETFs by 115 percentage points since March 2017 (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.
Stuart Zimmer of Zimmer Partners
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Do Hedge Funds Think QTS Is A Good Stock To Buy Now?
At first quarter's end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in QTS a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in QTS Realty Trust Inc (NYSE:QTS) was held by Zimmer Partners, which reported holding $182.7 million worth of stock at the end of December. It was followed by Long Pond Capital with a $60 million position. Other investors bullish on the company included V3 Capital, Waterfront Capital Partners, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position V3 Capital allocated the biggest weight to QTS Realty Trust Inc (NYSE:QTS), around 10.95% of its 13F portfolio. Land & Buildings Investment Management is also relatively very bullish on the stock, dishing out 3.2 percent of its 13F equity portfolio to QTS.
Due to the fact that QTS Realty Trust Inc (NYSE:QTS) has experienced a decline in interest from the smart money, it's easy to see that there were a few funds who were dropping their full holdings by the end of the first quarter. It's worth mentioning that Lawrence Raiman's LDR Capital sold off the biggest stake of the "upper crust" of funds tracked by Insider Monkey, worth close to $9.7 million in stock. Mark Coe's fund, Intrinsic Edge Capital, also dropped its stock, about $9.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the first quarter.
Let's check out hedge fund activity in other stocks similar to QTS Realty Trust Inc (NYSE:QTS). We will take a look at Allegiant Travel Company (NASDAQ:ALGT), Watts Water Technologies Inc (NYSE:WTS), Itron, Inc. (NASDAQ:ITRI), SmileDirectClub, Inc. (NASDAQ:SDC), Terreno Realty Corporation (NYSE:TRNO), Taylor Morrison Home Corp (NYSE:TMHC), and Six Flags Entertainment Corp (NYSE:SIX). All of these stocks' market caps are closest to QTS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALGT,22,402206,3 WTS,18,398034,0 ITRI,29,365455,23 SDC,21,177116,-4 TRNO,12,43004,3 TMHC,22,218154,-11 SIX,37,1036490,-4 Average,23,377208,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $377 million. That figure was $451 million in QTS's case. Six Flags Entertainment Corp (NYSE:SIX) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 12 bullish hedge fund positions. QTS Realty Trust Inc (NYSE:QTS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for QTS is 46.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on QTS as the stock returned 25.8% since the end of the first quarter (through 7/16) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.