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Did Hedge Funds Make The Right Call On Retail Properties of America Inc (RPAI)?

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 Retail Properties of America Inc (NYSE:RPAI) and determine whether the smart money was really smart about this stock.

Is Retail Properties of America Inc (NYSE:RPAI) ready to rally soon? The best stock pickers were taking a pessimistic view. The number of long hedge fund bets went down by 1 recently. Our calculations also showed that RPAI 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). RPAI was in 20 hedge funds’ portfolios at the end of March. There were 21 hedge funds in our database with RPAI holdings at the end of the previous quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium 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. With all of this in mind we’re going to take a glance at the new hedge fund action encompassing Retail Properties of America Inc (NYSE:RPAI).

Hedge fund activity in Retail Properties of America Inc (NYSE:RPAI)

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RPAI over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Retail Properties of America Inc (NYSE:RPAI), with a stake worth $34 million reported as of the end of September. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $7.9 million. Balyasny Asset Management, AQR Capital Management, and Two Sigma Advisors 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 Waterfront Capital Partners allocated the biggest weight to Retail Properties of America Inc (NYSE:RPAI), around 0.46% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.11 percent of its 13F equity portfolio to RPAI.

Since Retail Properties of America Inc (NYSE:RPAI) has faced falling interest from hedge fund managers, we can see that there is a sect of fund managers who were dropping their positions entirely heading into Q4. Intriguingly, Stuart J. Zimmer’s Zimmer Partners cut the largest position of the 750 funds watched by Insider Monkey, valued at about $31.8 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also dumped its stock, about $3.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Retail Properties of America Inc (NYSE:RPAI). These stocks are O-I Glass, Inc. (NYSE:OI), Axos Financial, Inc. (NYSE:AX), Heartland Financial USA Inc (NASDAQ:HTLF), and James River Group Holdings Ltd (NASDAQ:JRVR). All of these stocks’ market caps match RPAI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OI 29 255135 9
AX 12 43447 -3
HTLF 6 6048 -2
JRVR 13 72712 3
Average 15 94336 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $75 million in RPAI’s case. O-I Glass, Inc. (NYSE:OI) is the most popular stock in this table. On the other hand Heartland Financial USA Inc (NASDAQ:HTLF) is the least popular one with only 6 bullish hedge fund positions. Retail Properties of America Inc (NYSE:RPAI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 but beat the market by 17.1 percentage points. Unfortunately RPAI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RPAI were disappointed as the stock returned 17.2% during the same time period 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 many of these stocks already outperformed the market so far this year.

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