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Did Hedge Funds Drop The Ball ON Equity Lifestyle Properties, Inc. (ELS) ?

Is Equity Lifestyle Properties, Inc. (NYSE:ELS) 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.

Equity Lifestyle Properties, Inc. (NYSE:ELS) was in 18 hedge funds’ portfolios at the end of June. ELS has seen an increase in hedge fund sentiment recently. There were 15 hedge funds in our database with ELS holdings at the end of the previous quarter. Our calculations also showed that ELS isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 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 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.

TUDOR INVESTMENT CORP

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the latest hedge fund action surrounding Equity Lifestyle Properties, Inc. (NYSE:ELS).

How have hedgies been trading Equity Lifestyle Properties, Inc. (NYSE:ELS)?

At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in ELS over the last 16 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

ELS_oct2019

The largest stake in Equity Lifestyle Properties, Inc. (NYSE:ELS) was held by Renaissance Technologies, which reported holding $340.7 million worth of stock at the end of March. It was followed by AEW Capital Management with a $58.2 million position. Other investors bullish on the company included Waratah Capital Advisors, D E Shaw, and Millennium Management.

As one would reasonably expect, specific money managers have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Equity Lifestyle Properties, Inc. (NYSE:ELS). Marshall Wace LLP had $10.1 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $4.2 million investment in the stock during the quarter. The following funds were also among the new ELS investors: Paul Tudor Jones’s Tudor Investment Corp, Bruce Kovner’s Caxton Associates LP, and Steve Cohen’s Point72 Asset Management.

Let’s check out hedge fund activity in other stocks similar to Equity Lifestyle Properties, Inc. (NYSE:ELS). We will take a look at Marathon Oil Corporation (NYSE:MRO), FMC Corporation (NYSE:FMC), Mohawk Industries, Inc. (NYSE:MHK), and PerkinElmer, Inc. (NYSE:PKI). All of these stocks’ market caps are closest to ELS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MRO 32 494413 -5
FMC 36 1206447 7
MHK 33 1990526 -1
PKI 24 971959 -1
Average 31.25 1165836 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $1166 million. That figure was $554 million in ELS’s case. FMC Corporation (NYSE:FMC) is the most popular stock in this table. On the other hand PerkinElmer, Inc. (NYSE:PKI) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Equity Lifestyle Properties, Inc. (NYSE:ELS) is even less popular than PKI. Hedge funds clearly dropped the ball on ELS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on ELS as the stock returned 10.6% during the third quarter and outperformed the market by an even larger margin.

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

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