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Did Hedge Funds Make The Right Call On Corporate Office Properties Trust (OFC)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Corporate Office Properties Trust (NYSE:OFC) based on that data and determine whether they were really smart about the stock.

Is Corporate Office Properties Trust (NYSE:OFC) a buy, sell, or hold? Investors who are in the know were in a pessimistic mood. The number of long hedge fund bets dropped by 4 recently. Our calculations also showed that OFC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to view the fresh hedge fund action encompassing Corporate Office Properties Trust (NYSE:OFC).

What have hedge funds been doing with Corporate Office Properties Trust (NYSE:OFC)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in OFC over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Corporate Office Properties Trust (NYSE:OFC), with a stake worth $60.5 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $27.3 million. V3 Capital, Fisher Asset Management, and Adage Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position V3 Capital allocated the biggest weight to Corporate Office Properties Trust (NYSE:OFC), around 4.23% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, dishing out 0.79 percent of its 13F equity portfolio to OFC.

Due to the fact that Corporate Office Properties Trust (NYSE:OFC) has experienced a decline in interest from the smart money, we can see that there was a specific group of hedgies that decided to sell off their entire stakes last quarter. Interestingly, Steve Cohen’s Point72 Asset Management cut the largest position of the 750 funds tracked by Insider Monkey, worth an estimated $0.9 million in stock. Donald Sussman’s fund, Paloma Partners, also cut its stock, about $0.7 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Corporate Office Properties Trust (NYSE:OFC) but similarly valued. We will take a look at Manchester United PLC (NYSE:MANU), TreeHouse Foods Inc. (NYSE:THS), Halozyme Therapeutics, Inc. (NASDAQ:HALO), and ChemoCentryx Inc (NASDAQ:CCXI). This group of stocks’ market values are closest to OFC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MANU 8 27822 -2
THS 28 225828 1
HALO 23 154300 -2
CCXI 30 561624 7
Average 22.25 242394 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $242 million. That figure was $158 million in OFC’s case. ChemoCentryx Inc (NASDAQ:CCXI) is the most popular stock in this table. On the other hand Manchester United PLC (NYSE:MANU) is the least popular one with only 8 bullish hedge fund positions. Corporate Office Properties Trust (NYSE:OFC) is not the least popular stock in this group but hedge fund interest is still below average. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately OFC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OFC investors were disappointed as the stock returned 14.7% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.