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Did Hedge Funds Make The Right Call On Public Storage (PSA) ?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtPublic Storage (NYSE:PSA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Public Storage (NYSE:PSA) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 27 hedge funds’ portfolios at the end of March. At the end of this article we will also compare PSA to other stocks including Autodesk, Inc. (NASDAQ:ADSK), Keurig Dr Pepper Inc. (NASDAQ:KDP), and Atlassian Corporation Plc (NASDAQ:TEAM) to get a better sense of its popularity.

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

According to most market participants, hedge funds are perceived as underperforming, old investment vehicles of years past. While there are more than 8000 funds in operation at the moment, Our experts hone in on the leaders of this club, about 850 funds. These investment experts preside over the lion’s share of the hedge fund industry’s total capital, and by tracking their finest picks, Insider Monkey has unearthed many investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year 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 .

Och-Ziff Capital Management

Daniel Och, Founder of OZ Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the key hedge fund action regarding Public Storage (NYSE:PSA).

Hedge fund activity in Public Storage (NYSE:PSA)

Heading into the second quarter of 2020, a total of 27 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 PSA over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Is PSA A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Public Storage (NYSE:PSA), which was worth $292.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $174.1 million worth of shares. Citadel Investment Group, Arrowstreet Capital, and GLG Partners 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 Soapstone Capital allocated the biggest weight to Public Storage (NYSE:PSA), around 10.7% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, setting aside 2.98 percent of its 13F equity portfolio to PSA.

Judging by the fact that Public Storage (NYSE:PSA) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedgies that elected to cut their entire stakes in the first quarter. Intriguingly, Greg Poole’s Echo Street Capital Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, comprising about $16.6 million in stock, and Matthew Crandall Gilman’s Hill Winds Capital was right behind this move, as the fund said goodbye to about $7.3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Public Storage (NYSE:PSA). These stocks are Autodesk, Inc. (NASDAQ:ADSK), Keurig Dr Pepper Inc. (NASDAQ:KDP), Atlassian Corporation Plc (NASDAQ:TEAM), and Thomson Reuters Corporation (NYSE:TRI). This group of stocks’ market valuations are closest to PSA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADSK 65 2597838 1
KDP 30 564764 4
TEAM 59 2586287 -3
TRI 22 330343 1
Average 44 1519808 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $1520 million. That figure was $807 million in PSA’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Thomson Reuters Corporation (NYSE:TRI) is the least popular one with only 22 bullish hedge fund positions. Public Storage (NYSE:PSA) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately PSA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PSA investors were disappointed as the stock returned -2.4% during the second quarter 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.