Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth depends on it. Regardless of the various methods used by elite investors like David Tepper and Dan Loeb, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Weingarten Realty Investors (NYSE:WRI) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Boyd Gaming Corporation (NYSE:BYD), Lumentum Holdings Inc (NASDAQ:LITE), and AMC Networks Inc (NASDAQ:AMCX) to gather more data points.
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.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
We're going to go over the latest hedge fund action encompassing Weingarten Realty Investors (NYSE:WRI).
How have hedgies been trading Weingarten Realty Investors (NYSE:WRI)?
Heading into the fourth quarter of 2018, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, representing no change from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in WRI heading into this year. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Weingarten Realty Investors (NYSE:WRI) was held by Millennium Management, which reported holding $18.8 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $8.9 million position. Other investors bullish on the company included Waterfront Capital Partners, Echo Street Capital Management, and AQR Capital Management.
Due to the fact that Weingarten Realty Investors (NYSE:WRI) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few fund managers that decided to sell off their full holdings heading into Q3. At the top of the heap, Matthew Tewksbury's Stevens Capital Management cut the biggest stake of the "upper crust" of funds followed by Insider Monkey, worth close to $2.6 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dropped its stock, about $1 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Weingarten Realty Investors (NYSE:WRI). These stocks are Boyd Gaming Corporation (NYSE:BYD), Lumentum Holdings Inc (NASDAQ:LITE), AMC Networks Inc (NASDAQ:AMCX), and Louisiana-Pacific Corporation (NYSE:LPX). This group of stocks' market caps are closest to WRI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BYD,33,759409,6 LITE,33,197140,-3 AMCX,21,314255,2 LPX,28,360656,-2 Average,28.75,407865,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $408 million. That figure was $56 million in WRI's case. Boyd Gaming Corporation (NYSE:BYD) is the most popular stock in this table. On the other hand AMC Networks Inc (NASDAQ:AMCX) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Weingarten Realty Investors (NYSE:WRI) is even less popular than AMCX. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.