There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Vornado Realty Trust (NYSE:VNO).
Is Vornado Realty Trust (NYSE:VNO) a good investment right now? The best stock pickers are becoming less hopeful. The number of long hedge fund bets dropped by 3 in recent months. Our calculations also showed that VNO isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the recent hedge fund action surrounding Vornado Realty Trust (NYSE:VNO).
Hedge fund activity in Vornado Realty Trust (NYSE:VNO)
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in VNO over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
[caption id="attachment_758450" align="aligncenter" width="450"] Martin Whitman of Third Avenue Management[/caption]
When looking at the institutional investors followed by Insider Monkey, John Khoury's Long Pond Capital has the biggest position in Vornado Realty Trust (NYSE:VNO), worth close to $299.6 million, accounting for 9% of its total 13F portfolio. Coming in second is Winton Capital Management, led by David Harding, holding a $35.9 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other peers that are bullish contain Paul Singer's Elliott Management, Dmitry Balyasny's Balyasny Asset Management and Martin Whitman's Third Avenue Management.
Judging by the fact that Vornado Realty Trust (NYSE:VNO) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there exists a select few hedge funds who were dropping their positions entirely last quarter. It's worth mentioning that Paul Singer's Elliott Management dropped the largest investment of the "upper crust" of funds watched by Insider Monkey, totaling close to $47.2 million in stock, and Josh Donfeld and David Rogers's Castle Hook Partners was right behind this move, as the fund sold off about $1.7 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Vornado Realty Trust (NYSE:VNO). These stocks are Elanco Animal Health Incorporated (NYSE:ELAN), Ally Financial Inc (NYSE:ALLY), The Liberty SiriusXM Group (NASDAQ:LSXMK), and Viacom, Inc. (NASDAQ:VIAB). This group of stocks' market caps are similar to VNO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ELAN,27,520304,-6 ALLY,43,2105450,8 LSXMK,42,2588588,-3 VIAB,41,1052795,3 Average,38.25,1566784,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $1567 million. That figure was $534 million in VNO's case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Elanco Animal Health Incorporated (NYSE:ELAN) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Vornado Realty Trust (NYSE:VNO) is even less popular than ELAN. Hedge funds dodged a bullet by taking a bearish stance towards VNO. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VNO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VNO investors were disappointed as the stock returned 0.4% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.