Did Hedge Funds Drop The Ball On Retail Properties of America Inc (RPAI) ?

Is Retail Properties of America Inc (NYSE:RPAI) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Retail Properties of America Inc (NYSE:RPAI) going to take off soon? Hedge funds are taking a bearish view. The number of long hedge fund positions were cut by 2 recently. Our calculations also showed that RPAI 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.

In the 21st century investor’s toolkit there are a lot of formulas stock market investors can use to grade their holdings. A duo of the most underrated formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the best hedge fund managers can outclass the market by a healthy amount (see the details here).

Dmitry Balyasny

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let’s take a look at the recent hedge fund action surrounding Retail Properties of America Inc (NYSE:RPAI).

Hedge fund activity in Retail Properties of America Inc (NYSE:RPAI)

At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in RPAI over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with RPAI Positions

More specifically, Renaissance Technologies was the largest shareholder of Retail Properties of America Inc (NYSE:RPAI), with a stake worth $73.8 million reported as of the end of March. Trailing Renaissance Technologies was AEW Capital Management, which amassed a stake valued at $66.9 million. Zimmer Partners, Balyasny Asset Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because Retail Properties of America Inc (NYSE:RPAI) has witnessed declining sentiment from the smart money, it’s safe to say that there were a few money managers who sold off their entire stakes heading into Q3. At the top of the heap, Minhua Zhang’s Weld Capital Management dumped the biggest investment of the 750 funds watched by Insider Monkey, comprising an estimated $2.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $0.6 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Retail Properties of America Inc (NYSE:RPAI). These stocks are iRobot Corporation (NASDAQ:IRBT), Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI), Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR), and The Geo Group, Inc. (NYSE:GEO). This group of stocks’ market values match RPAI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IRBT 9 57604 -6
ARI 13 68424 2
ARWR 16 240028 0
GEO 20 112073 2
Average 14.5 119532 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $241 million in RPAI’s case. The Geo Group, Inc. (NYSE:GEO) is the most popular stock in this table. On the other hand iRobot Corporation (NASDAQ:IRBT) is the least popular one with only 9 bullish hedge fund positions. Retail Properties of America Inc (NYSE:RPAI) is not the least popular stock in this group but hedge fund interest is still below average. 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 RPAI as the stock returned 6.2% during the same time frame and outperformed the market by an even larger margin.

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