Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Vereit Inc (NYSE:VER).
Is Vereit Inc (NYSE:VER) a first-rate investment now? Prominent investors are taking a bearish view. The number of bullish hedge fund positions dropped by 4 recently. Our calculations also showed that VER isn't among the 30 most popular stocks among hedge funds. VER was in 18 hedge funds' portfolios at the end of December. There were 22 hedge funds in our database with VER positions at the end of the previous quarter.
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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's take a glance at the new hedge fund action surrounding Vereit Inc (NYSE:VER).
What have hedge funds been doing with Vereit Inc (NYSE:VER)?
At Q4's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VER over the last 14 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.
More specifically, Eminence Capital was the largest shareholder of Vereit Inc (NYSE:VER), with a stake worth $73.8 million reported as of the end of September. Trailing Eminence Capital was Redwood Capital Management, which amassed a stake valued at $66.5 million. Glendon Capital Management, Glenview Capital, and Lakewood Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Vereit Inc (NYSE:VER) has experienced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of fund managers that decided to sell off their full holdings heading into Q3. Intriguingly, Peter S. Park's Park West Asset Management dropped the biggest investment of the "upper crust" of funds followed by Insider Monkey, worth about $7.1 million in stock, and Jeffrey Talpins's Element Capital Management was right behind this move, as the fund dumped about $1.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 4 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to Vereit Inc (NYSE:VER). These stocks are Gaming and Leisure Properties Inc (NASDAQ:GLPI), Nordson Corporation (NASDAQ:NDSN), Steel Dynamics, Inc. (NASDAQ:STLD), and Invesco Ltd. (NYSE:IVZ). All of these stocks' market caps match VER's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLPI,27,955443,-6 NDSN,19,76198,3 STLD,30,542904,2 IVZ,24,284167,-3 Average,25,464678,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $465 million. That figure was $361 million in VER's case. Steel Dynamics, Inc. (NASDAQ:STLD) is the most popular stock in this table. On the other hand Nordson Corporation (NASDAQ:NDSN) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Vereit Inc (NYSE:VER) is even less popular than NDSN. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. A few hedge funds were also right about betting on VER, though not to the same extent, as the stock returned 17.7% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.