Did Hedge Funds Drop The Ball On Essential Properties Realty Trust, Inc. (EPRT) ?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Essential Properties Realty Trust, Inc. (NYSE:EPRT).

Essential Properties Realty Trust, Inc. (NYSE:EPRT) was in 13 hedge funds’ portfolios at the end of December. EPRT shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 16 hedge funds in our database with EPRT positions at the end of the previous quarter. Our calculations also showed that eprt isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? 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.

Clint Carlson, Carlson Capital

We’re going to take a gander at the fresh hedge fund action surrounding Essential Properties Realty Trust, Inc. (NYSE:EPRT).

How have hedgies been trading Essential Properties Realty Trust, Inc. (NYSE:EPRT)?

Heading into the first quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards EPRT over the last 14 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with EPRT Positions

More specifically, Echo Street Capital Management was the largest shareholder of Essential Properties Realty Trust, Inc. (NYSE:EPRT), with a stake worth $26.4 million reported as of the end of December. Trailing Echo Street Capital Management was Citadel Investment Group, which amassed a stake valued at $24.8 million. Carlson Capital, Millennium Management, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Essential Properties Realty Trust, Inc. (NYSE:EPRT) has witnessed declining sentiment from hedge fund managers, we can see that there were a few funds that decided to sell off their full holdings last quarter. At the top of the heap, John Khoury’s Long Pond Capital said goodbye to the biggest investment of the 700 funds followed by Insider Monkey, totaling about $42.6 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $16.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Essential Properties Realty Trust, Inc. (NYSE:EPRT). We will take a look at Byline Bancorp, Inc. (NYSE:BY), Horizon Bancorp, Inc. (NASDAQ:HBNC), Flushing Financial Corporation (NASDAQ:FFIC), and Lantheus Holdings Inc (NASDAQ:LNTH). All of these stocks’ market caps match EPRT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BY 6 20476 2
HBNC 6 16821 0
FFIC 7 40961 -1
LNTH 17 65005 1
Average 9 35816 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $105 million in EPRT’s case. Lantheus Holdings Inc (NASDAQ:LNTH) is the most popular stock in this table. On the other hand Byline Bancorp, Inc. (NYSE:BY) is the least popular one with only 6 bullish hedge fund positions. Essential Properties Realty Trust, Inc. (NYSE:EPRT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on EPRT as the stock returned 38.8% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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