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Did Hedge Funds Make The Right Call On Paramount Group Inc (PGRE)?

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 Paramount Group Inc (NYSE:PGRE) based on that data and determine whether they were really smart about the stock.

Paramount Group Inc (NYSE:PGRE) was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. PGRE has experienced a decrease in support from the world’s most elite money managers of late. There were 20 hedge funds in our database with PGRE positions at the end of the previous quarter. Our calculations also showed that PGRE 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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

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 we’re going to take a look at the recent hedge fund action regarding Paramount Group Inc (NYSE:PGRE).

What does smart money think about Paramount Group Inc (NYSE:PGRE)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the fourth quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in PGRE a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is PGRE A Good Stock To Buy?

More specifically, Owl Creek Asset Management was the largest shareholder of Paramount Group Inc (NYSE:PGRE), with a stake worth $44.4 million reported as of the end of September. Trailing Owl Creek Asset Management was Long Pond Capital, which amassed a stake valued at $42.5 million. Renaissance Technologies, Two Sigma Advisors, and Citadel Investment Group 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 Owl Creek Asset Management allocated the biggest weight to Paramount Group Inc (NYSE:PGRE), around 3.53% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, dishing out 2.18 percent of its 13F equity portfolio to PGRE.

Due to the fact that Paramount Group Inc (NYSE:PGRE) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of funds that elected to cut their positions entirely in the first quarter. At the top of the heap, Noam Gottesman’s GLG Partners said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, comprising about $20.6 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $19 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Paramount Group Inc (NYSE:PGRE) but similarly valued. We will take a look at The Ensign Group, Inc. (NASDAQ:ENSG), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), and Home Bancshares Inc (NASDAQ:HOMB). This group of stocks’ market caps are similar to PGRE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENSG 18 88885 3
APLS 30 455911 -1
CBRL 23 101131 -1
HOMB 20 15614 8
Average 22.75 165385 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $165 million. That figure was $155 million in PGRE’s case. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is the most popular stock in this table. On the other hand The Ensign Group, Inc. (NASDAQ:ENSG) is the least popular one with only 18 bullish hedge fund positions. Paramount Group Inc (NYSE:PGRE) 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 PGRE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PGRE investors were disappointed as the stock returned -19.4% 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.