Did Hedge Funds Make The Right Call On National Retail Properties, Inc. (NNN) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding National Retail Properties, Inc. (NYSE:NNN) and determine whether hedge funds had an edge regarding this stock.

Is National Retail Properties, Inc. (NYSE:NNN) a first-rate stock to buy now? The smart money was turning less bullish. The number of bullish hedge fund bets went down by 4 lately. Our calculations also showed that NNN 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). NNN was in 19 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with NNN holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most traders, hedge funds are seen as worthless, old investment tools of years past. While there are more than 8000 funds in operation at the moment, Our researchers hone in on the upper echelon of this group, approximately 850 funds. It is estimated that this group of investors shepherd the lion’s share of the smart money’s total asset base, and by keeping an eye on their unrivaled picks, Insider Monkey has unearthed numerous investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

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 take a look at the fresh hedge fund action surrounding National Retail Properties, Inc. (NYSE:NNN).

How have hedgies been trading National Retail Properties, Inc. (NYSE:NNN)?

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

More specifically, Two Sigma Advisors was the largest shareholder of National Retail Properties, Inc. (NYSE:NNN), with a stake worth $16.4 million reported as of the end of September. Trailing Two Sigma Advisors was Citadel Investment Group, which amassed a stake valued at $15.6 million. D E Shaw, Point72 Asset Management, and Winton 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 Quantinno Capital allocated the biggest weight to National Retail Properties, Inc. (NYSE:NNN), around 0.33% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.27 percent of its 13F equity portfolio to NNN.

Since National Retail Properties, Inc. (NYSE:NNN) has witnessed declining sentiment from the smart money, it’s safe to say that there is a sect of fund managers who sold off their positions entirely by the end of the first quarter. Intriguingly, Greg Poole’s Echo Street Capital Management cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $35.6 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $10.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to National Retail Properties, Inc. (NYSE:NNN). These stocks are Bruker Corporation (NASDAQ:BRKR), Lumentum Holdings Inc (NASDAQ:LITE), Dolby Laboratories, Inc. (NYSE:DLB), and Bausch Health Companies Inc. (NYSE:BHC). This group of stocks’ market caps are closest to NNN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRKR 21 109920 -4
LITE 34 487864 -3
DLB 29 374056 -2
BHC 35 1566790 4
Average 29.75 634658 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $635 million. That figure was $62 million in NNN’s case. Bausch Health Companies Inc. (NYSE:BHC) is the most popular stock in this table. On the other hand Bruker Corporation (NASDAQ:BRKR) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks National Retail Properties, Inc. (NYSE:NNN) is even less popular than BRKR. Hedge funds dodged a bullet by taking a bearish stance towards NNN. 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 NNN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); NNN investors were disappointed as the stock returned 10.5% 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.