"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Retail Properties of America Inc (NYSE:RPAI) was in 14 hedge funds' portfolios at the end of September. RPAI has experienced a decrease in enthusiasm from smart money lately. There were 17 hedge funds in our database with RPAI holdings at the end of the previous quarter. Our calculations also showed that RPAI isn't among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We're going to go over the new hedge fund action surrounding Retail Properties of America Inc (NYSE:RPAI).
How are hedge funds trading Retail Properties of America Inc (NYSE:RPAI)?
Heading into the fourth quarter of 2018, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in RPAI over the last 13 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.
Of the funds tracked by Insider Monkey, AEW Capital Management, managed by Jeffrey Furber, holds the biggest position in Retail Properties of America Inc (NYSE:RPAI). AEW Capital Management has a $86.6 million position in the stock, comprising 2.4% of its 13F portfolio. On AEW Capital Management's heels is Renaissance Technologies, led by Jim Simons, holding a $60.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions include Stuart J. Zimmer's Zimmer Partners, Dmitry Balyasny's Balyasny Asset Management and Noam Gottesman's GLG Partners.
Seeing as Retail Properties of America Inc (NYSE:RPAI) has faced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few money managers who were dropping their full holdings last quarter. At the top of the heap, Israel Englander's Millennium Management dumped the biggest position of the "upper crust" of funds watched by Insider Monkey, valued at about $51.6 million in stock. Ken Griffin's fund, Citadel Investment Group, also dropped its stock, about $1.2 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Retail Properties of America Inc (NYSE:RPAI). These stocks are Cloudera, Inc. (NYSE:CLDR), Integer Holdings Corporation (NYSE:ITGR), Legg Mason, Inc. (NYSE:LM), and Washington Federal Inc. (NASDAQ:WAFD). This group of stocks' market caps are similar to RPAI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLDR,25,113418,12 ITGR,17,247639,-5 LM,20,156049,3 WAFD,13,74324,0 Average,18.75,147858,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $244 million in RPAI's case. Cloudera, Inc. (NYSE:CLDR) is the most popular stock in this table. On the other hand Washington Federal Inc. (NASDAQ:WAFD) is the least popular one with only 13 bullish hedge fund positions. Retail Properties of America Inc (NYSE:RPAI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard CLDR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.