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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Healthcare Realty Trust Inc (NYSE:HR).
Is Healthcare Realty Trust Inc (NYSE:HR) the right investment to pursue these days? The smart money was becoming less hopeful. The number of long hedge fund positions fell by 4 lately. Healthcare Realty Trust Inc (NYSE:HR) was in 18 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. Our calculations also showed that HR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Clint Carlson of Carlson Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we're going to view the new hedge fund action regarding Healthcare Realty Trust Inc (NYSE:HR).
Do Hedge Funds Think HR Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in HR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
The largest stake in Healthcare Realty Trust Inc (NYSE:HR) was held by Zimmer Partners, which reported holding $67.8 million worth of stock at the end of September. It was followed by Carlson Capital with a $26 million position. Other investors bullish on the company included Waterfront Capital Partners, Citadel Investment Group, and Impax Asset Management. In terms of the portfolio weights assigned to each position Hill Winds Capital allocated the biggest weight to Healthcare Realty Trust Inc (NYSE:HR), around 7.19% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, dishing out 2.03 percent of its 13F equity portfolio to HR.
Judging by the fact that Healthcare Realty Trust Inc (NYSE:HR) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few fund managers who sold off their entire stakes in the third quarter. At the top of the heap, Michael Gelband's ExodusPoint Capital cut the biggest stake of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $3.5 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund dropped about $1.9 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Healthcare Realty Trust Inc (NYSE:HR). These stocks are SSR Mining Inc. (NASDAQ:SSRM), GoHealth, Inc. (NASDAQ:GOCO), Silgan Holdings Inc. (NASDAQ:SLGN), NeoGenomics, Inc. (NASDAQ:NEO), Nexstar Media Group, Inc. (NASDAQ:NXST), The Timken Company (NYSE:TKR), and Mattel, Inc. (NASDAQ:MAT). This group of stocks' market valuations are closest to HR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSRM,18,306021,0 GOCO,17,633764,17 SLGN,15,207950,-4 NEO,17,78934,-2 NXST,41,731820,-1 TKR,34,240044,3 MAT,26,724311,1 Average,24,417549,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $418 million. That figure was $166 million in HR's case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand Silgan Holdings Inc. (NASDAQ:SLGN) is the least popular one with only 15 bullish hedge fund positions. Healthcare Realty Trust Inc (NYSE:HR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HR is 31.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately HR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HR investors were disappointed as the stock returned -2% since the end of September (through 12/14) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.