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Did Hedge Funds Make The Right Call On Hudson Pacific Properties Inc (HPP) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Hudson Pacific Properties Inc (NYSE:HPP) and determine whether the smart money was really smart about this stock.

Hudson Pacific Properties Inc (NYSE:HPP) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as US Foods Holding Corp. (NYSE:USFD), Equity Commonwealth (NYSE:EQC), and Cogent Communications Holdings Inc. (NASDAQ:CCOI) to gather more data points. Our calculations also showed that HPP 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 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 S&P 500 ETFs by 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 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.

Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to go over the key hedge fund action surrounding Hudson Pacific Properties Inc (NYSE:HPP).

What have hedge funds been doing with Hudson Pacific Properties Inc (NYSE:HPP)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HPP over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Hudson Pacific Properties Inc (NYSE:HPP) was held by Long Pond Capital, which reported holding $70 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $34.7 million position. Other investors bullish on the company included D1 Capital Partners, Waterfront Capital Partners, and Land & Buildings Investment Management. In terms of the portfolio weights assigned to each position Land & Buildings Investment Management allocated the biggest weight to Hudson Pacific Properties Inc (NYSE:HPP), around 9.39% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, earmarking 3.73 percent of its 13F equity portfolio to HPP.

Seeing as Hudson Pacific Properties Inc (NYSE:HPP) has faced falling interest from the smart money, it’s safe to say that there is a sect of fund managers that decided to sell off their positions entirely heading into Q4. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management cut the largest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $17.2 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also said goodbye to its stock, about $2.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Hudson Pacific Properties Inc (NYSE:HPP) but similarly valued. We will take a look at US Foods Holding Corp. (NYSE:USFD), Equity Commonwealth (NYSE:EQC), Cogent Communications Holdings Inc. (NASDAQ:CCOI), and Tetra Tech, Inc. (NASDAQ:TTEK). This group of stocks’ market caps are similar to HPP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
USFD 33 507135 -4
EQC 20 176264 -2
CCOI 27 454195 3
TTEK 21 115608 -2
Average 25.25 313301 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $313 million. That figure was $232 million in HPP’s case. US Foods Holding Corp. (NYSE:USFD) is the most popular stock in this table. On the other hand Equity Commonwealth (NYSE:EQC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Hudson Pacific Properties Inc (NYSE:HPP) is even less popular than EQC. Hedge funds dodged a bullet by taking a bearish stance towards HPP. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 17.1 percentage points. Unfortunately HPP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); HPP investors were disappointed as the stock returned -4.6% 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 so far in 2020.

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