We can judge whether Welltower Inc. (NYSE:WELL) 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 when we factor in known risk factors.
Is Welltower Inc. (NYSE:WELL) a good investment now? Money managers are becoming less confident. The number of long hedge fund positions decreased by 2 lately. Our calculations also showed that WELL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). WELL was in 15 hedge funds' portfolios at the end of the third quarter of 2019. There were 17 hedge funds in our database with WELL positions at the end of the previous quarter. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_340081" align="aligncenter" width="600"] Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a look at the recent hedge fund action regarding Welltower Inc. (NYSE:WELL).
Hedge fund activity in Welltower Inc. (NYSE:WELL)
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WELL over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Welltower Inc. (NYSE:WELL) was held by Zimmer Partners, which reported holding $216.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $53.4 million position. Other investors bullish on the company included Adage Capital Management, AQR Capital Management, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to Welltower Inc. (NYSE:WELL), around 2.35% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, setting aside 0.18 percent of its 13F equity portfolio to WELL.
Judging by the fact that Welltower Inc. (NYSE:WELL) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there is a sect of hedgies who were dropping their entire stakes in the third quarter. At the top of the heap, Jeffrey Furber's AEW Capital Management sold off the largest stake of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $147.3 million in call options, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund said goodbye to about $1.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Welltower Inc. (NYSE:WELL). We will take a look at Canadian Imperial Bank of Commerce (NYSE:CM), Ford Motor Company (NYSE:F), Prudential Financial Inc (NYSE:PRU), and Manulife Financial Corporation (NYSE:MFC). This group of stocks' market caps match WELL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CM,15,220104,3 F,35,1152594,-4 PRU,27,576526,-6 MFC,17,354745,1 Average,23.5,575992,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $576 million. That figure was $365 million in WELL's case. Ford Motor Company (NYSE:F) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Welltower Inc. (NYSE:WELL) is even less popular than CM. Hedge funds dodged a bullet by taking a bearish stance towards WELL. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WELL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WELL investors were disappointed as the stock returned -5.7% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.