U.S. Markets close in 1 hr 17 mins

Hedge Funds Watching Sabra Health Care REIT Inc (SBRA) From Afar

Reymerlyn Martin

Is Sabra Health Care REIT Inc (NASDAQ:SBRA) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Hedge fund interest in Sabra Health Care REIT Inc (NASDAQ:SBRA) 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 SBRA to other stocks including TriNet Group Inc (NYSE:TNET), PacWest Bancorp (NASDAQ:PACW), and Aaron's, Inc. (NYSE:AAN) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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 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 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.

[caption id="attachment_746830" align="aligncenter" width="1613"] Matthew Hulsizer of PEAK6 Capital[/caption]

Matthew Hulsizer PEAK6 Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to analyze the fresh hedge fund action encompassing Sabra Health Care REIT Inc (NASDAQ:SBRA).

How have hedgies been trading Sabra Health Care REIT Inc (NASDAQ:SBRA)?

At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SBRA over the last 17 quarters. 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 Sabra Health Care REIT Inc (NASDAQ:SBRA) was held by Long Pond Capital, which reported holding $73.4 million worth of stock at the end of September. It was followed by Forward Management with a $12.1 million position. Other investors bullish on the company included Gillson Capital, Eversept Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Long Pond Capital allocated the biggest weight to Sabra Health Care REIT Inc (NASDAQ:SBRA), around 1.91% of its 13F portfolio. Forward Management is also relatively very bullish on the stock, setting aside 1.84 percent of its 13F equity portfolio to SBRA.

Since Sabra Health Care REIT Inc (NASDAQ:SBRA) has faced declining sentiment from hedge fund managers, logic holds that there were a few hedge funds who were dropping their positions entirely last quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management dropped the largest stake of all the hedgies tracked by Insider Monkey, comprising close to $11.3 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund cut about $1.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Sabra Health Care REIT Inc (NASDAQ:SBRA) but similarly valued. These stocks are TriNet Group Inc (NYSE:TNET), PacWest Bancorp (NASDAQ:PACW), Aaron's, Inc. (NYSE:AAN), and argenx SE (NASDAQ:ARGX). This group of stocks' market caps match SBRA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TNET,18,419054,-3 PACW,23,251367,3 AAN,18,310016,-4 ARGX,24,619897,2 Average,20.75,400084,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $400 million. That figure was $100 million in SBRA's case. argenx SE (NASDAQ:ARGX) is the most popular stock in this table. On the other hand TriNet Group Inc (NYSE:TNET) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Sabra Health Care REIT Inc (NASDAQ:SBRA) is even less popular than TNET. Hedge funds dodged a bullet by taking a bearish stance towards SBRA. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SBRA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SBRA investors were disappointed as the stock returned -1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content