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Is OFC A Good Stock To Buy Now According To Hedge Funds?

Abigail Fisher
·6 min read

In this article we will analyze whether Corporate Office Properties Trust (NYSE:OFC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is OFC a good stock to buy now? Corporate Office Properties Trust (NYSE:OFC) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 23. OFC has seen an increase in enthusiasm from smart money in recent months. There were 20 hedge funds in our database with OFC holdings at the end of June. Our calculations also showed that OFC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Stuart Zimmer Zimmer Partners
Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's review the key hedge fund action regarding Corporate Office Properties Trust (NYSE:OFC).

Do Hedge Funds Think OFC Is A Good Stock To Buy Now?

At Q3's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in OFC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Corporate Office Properties Trust (NYSE:OFC) was held by Citadel Investment Group, which reported holding $53.9 million worth of stock at the end of September. It was followed by Zimmer Partners with a $51.6 million position. Other investors bullish on the company included Renaissance Technologies, Waterfront Capital Partners, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Waterfront Capital Partners allocated the biggest weight to Corporate Office Properties Trust (NYSE:OFC), around 2.2% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, designating 0.8 percent of its 13F equity portfolio to OFC.

Consequently, some big names were leading the bulls' herd. Waterfront Capital Partners, managed by Eduardo Abush, established the most outsized position in Corporate Office Properties Trust (NYSE:OFC). Waterfront Capital Partners had $13.6 million invested in the company at the end of the quarter. Hoon Kim's Quantinno Capital also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Peter Algert's Algert Global, and Mika Toikka's AlphaCrest Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Corporate Office Properties Trust (NYSE:OFC) but similarly valued. These stocks are Workhorse Group, Inc. (NASDAQ:WKHS), Evercore Inc. (NYSE:EVR), Axsome Therapeutics, Inc. (NASDAQ:AXSM), Palomar Holdings, Inc. (NASDAQ:PLMR), Valmont Industries, Inc. (NYSE:VMI), BRF SA (NYSE:BRFS), and Kodiak Sciences Inc (NASDAQ:KOD). This group of stocks' market caps are closest to OFC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WKHS,13,105784,4 EVR,27,216500,2 AXSM,20,438563,-11 PLMR,8,67853,-7 VMI,26,298782,-1 BRFS,10,17110,-6 KOD,20,871726,0 Average,17.7,288045,-2.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $288 million. That figure was $192 million in OFC's case. Evercore Inc. (NYSE:EVR) is the most popular stock in this table. On the other hand Palomar Holdings, Inc. (NASDAQ:PLMR) is the least popular one with only 8 bullish hedge fund positions. Corporate Office Properties Trust (NYSE:OFC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OFC is 67.6. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on OFC as the stock returned 10.1% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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