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Did Hedge Funds Make The Right Call On JBG SMITH Properties (JBGS)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards JBG SMITH Properties (NYSE:JBGS) and determine whether hedge funds skillfully traded this stock.

JBG SMITH Properties (NYSE:JBGS) was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. JBGS shareholders have witnessed an increase in support from the world’s most elite money managers lately. There were 19 hedge funds in our database with JBGS holdings at the end of the previous quarter. Our calculations also showed that JBGS 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.

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 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 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 stocks that are in our short portfolio.

Donald Sussman Paloma Partners

Donald Sussman of Paloma 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. Keeping this in mind let’s view the latest hedge fund action encompassing JBG SMITH Properties (NYSE:JBGS).

How are hedge funds trading JBG SMITH Properties (NYSE:JBGS)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the fourth quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in JBGS a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Is JBGS A Good Stock To Buy?

Of the funds tracked by Insider Monkey, John Khoury’s Long Pond Capital has the number one position in JBG SMITH Properties (NYSE:JBGS), worth close to $110.8 million, comprising 5.7% of its total 13F portfolio. On Long Pond Capital’s heels is V3 Capital, managed by Charles Fitzgerald, which holds a $91.5 million position; the fund has 20% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Martin Whitman’s Third Avenue Management, Joshua Nash’s Ulysses Management and Eduardo Abush’s Waterfront Capital Partners. In terms of the portfolio weights assigned to each position V3 Capital allocated the biggest weight to JBG SMITH Properties (NYSE:JBGS), around 20.01% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, earmarking 5.8 percent of its 13F equity portfolio to JBGS.

As one would reasonably expect, key money managers were leading the bulls’ herd. V3 Capital, managed by Charles Fitzgerald, assembled the most outsized position in JBG SMITH Properties (NYSE:JBGS). V3 Capital had $91.5 million invested in the company at the end of the quarter. Ric Dillon’s Diamond Hill Capital also made a $4.9 million investment in the stock during the quarter. The following funds were also among the new JBGS investors: Alec Litowitz and Ross Laser’s Magnetar Capital, Israel Englander’s Millennium Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s also examine hedge fund activity in other stocks similar to JBG SMITH Properties (NYSE:JBGS). These stocks are Portland General Electric Company (NYSE:POR), FLIR Systems, Inc. (NASDAQ:FLIR), NewMarket Corporation (NYSE:NEU), and TFS Financial Corporation (NASDAQ:TFSL). This group of stocks’ market valuations are closest to JBGS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
POR 23 247138 -4
FLIR 34 193470 2
NEU 20 143254 -2
TFSL 9 134718 -2
Average 21.5 179645 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $319 million in JBGS’s case. FLIR Systems, Inc. (NASDAQ:FLIR) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 9 bullish hedge fund positions. JBG SMITH Properties (NYSE:JBGS) 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 JBGS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); JBGS investors were disappointed as the stock returned -8.6% 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 in 2020.

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