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Were Hedge Funds Right About Flocking Into Alexandria Real Estate Equities Inc (ARE) ?

Asma UL Husna

Is Alexandria Real Estate Equities Inc (NYSE:ARE) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Alexandria Real Estate Equities Inc (NYSE:ARE) a buy here? Hedge funds are in a bullish mood. The number of long hedge fund bets increased by 4 lately. Our calculations also showed that ARE isn't among the 30 most popular stocks among hedge funds. ARE was in 22 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 18 hedge funds in our database with ARE holdings at the end of the previous quarter.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken-Heebner

We're going to go over the fresh hedge fund action encompassing Alexandria Real Estate Equities Inc (NYSE:ARE).

Hedge fund activity in Alexandria Real Estate Equities Inc (NYSE:ARE)

At Q4's end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ARE over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ARE_mar2019

When looking at the institutional investors followed by Insider Monkey, Ken Griffin's Citadel Investment Group has the biggest position in Alexandria Real Estate Equities Inc (NYSE:ARE), worth close to $41 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Capital Growth Management, managed by Ken Heebner, which holds a $34.6 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Other peers that are bullish consist of Greg Poole's Echo Street Capital Management, Israel Englander's Millennium Management and Clint Carlson's Carlson Capital.

As aggregate interest increased, key hedge funds were leading the bulls' herd. Capital Growth Management, managed by Ken Heebner, established the most outsized position in Alexandria Real Estate Equities Inc (NYSE:ARE). Capital Growth Management had $34.6 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also made a $4.6 million investment in the stock during the quarter. The other funds with brand new ARE positions are Josh Donfeld and David Rogers's Castle Hook Partners, Jeffrey Talpins's Element Capital Management, and Jeffrey Furber's AEW Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Alexandria Real Estate Equities Inc (NYSE:ARE) but similarly valued. These stocks are Nomura Holdings, Inc. (NYSE:NMR), Host Hotels and Resorts Inc (NYSE:HST), PG&E Corporation (NYSE:PCG), and CoStar Group Inc (NASDAQ:CSGP). This group of stocks' market valuations resemble ARE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NMR,5,37001,3 HST,22,328825,1 PCG,58,2496519,-2 CSGP,23,753921,-6 Average,27,904067,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $904 million. That figure was $217 million in ARE's case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. Alexandria Real Estate Equities Inc (NYSE:ARE) 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. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on ARE as the stock returned 21.9% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

Disclosure: None. This article was originally published at Insider Monkey.

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