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Were Hedge Funds Right About Souring On Farmland Partners Inc (FPI)?

Reymerlyn Martin

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Farmland Partners Inc (NYSE:FPI).

Farmland Partners Inc (NYSE:FPI) investors should be aware of a decrease in enthusiasm from smart money in recent months. FPI was in 8 hedge funds' portfolios at the end of June. There were 9 hedge funds in our database with FPI positions at the end of the previous quarter. Our calculations also showed that FPI isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Howard Marks OAKTREE CAPITAL MANAGEMENT

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's analyze the fresh hedge fund action surrounding Farmland Partners Inc (NYSE:FPI).

What have hedge funds been doing with Farmland Partners Inc (NYSE:FPI)?

Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the first quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in FPI a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FPI_nov2019

The largest stake in Farmland Partners Inc (NYSE:FPI) was held by D E Shaw, which reported holding $3 million worth of stock at the end of March. It was followed by Marshall Wace LLP with a $1.7 million position. Other investors bullish on the company included Oaktree Capital Management, Citadel Investment Group, and Renaissance Technologies.

Because Farmland Partners Inc (NYSE:FPI) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of fund managers who sold off their full holdings in the second quarter. It's worth mentioning that John Overdeck and David Siegel's Two Sigma Advisors cut the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling close to $0.1 million in call options, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund cut about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the second quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Farmland Partners Inc (NYSE:FPI) but similarly valued. We will take a look at Covenant Transportation Group, Inc. (NASDAQ:CVTI), Value Line, Inc. (NASDAQ:VALU), Geron Corporation (NASDAQ:GERN), and U.S. Xpress Enterprises, Inc. (NYSE:USX). This group of stocks' market valuations are closest to FPI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVTI,14,18137,3 VALU,2,4082,0 GERN,2,219,-3 USX,8,25626,-4 Average,6.5,12016,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $9 million in FPI's case. Covenant Transportation Group, Inc. (NASDAQ:CVTI) is the most popular stock in this table. On the other hand Value Line, Inc. (NASDAQ:VALU) is the least popular one with only 2 bullish hedge fund positions. Farmland Partners Inc (NYSE:FPI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FPI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FPI were disappointed as the stock returned -4.5% 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 this year.

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

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