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Did Hedge Funds Make The Right Call On Seritage Growth Properties (SRG)?

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 Seritage Growth Properties (NYSE:SRG) based on that data and determine whether they were really smart about the stock.

Seritage Growth Properties (NYSE:SRG) was in 17 hedge funds’ portfolios at the end of March. SRG has experienced an increase in activity from the world’s largest hedge funds recently. There were 15 hedge funds in our database with SRG holdings at the end of the previous quarter. Our calculations also showed that SRG 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.

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.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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 let’s view the new hedge fund action regarding Seritage Growth Properties (NYSE:SRG).

How are hedge funds trading Seritage Growth Properties (NYSE:SRG)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in SRG a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is SRG A Good Stock To Buy?

More specifically, BloombergSen was the largest shareholder of Seritage Growth Properties (NYSE:SRG), with a stake worth $25 million reported as of the end of September. Trailing BloombergSen was Empyrean Capital Partners, which amassed a stake valued at $18.1 million. Gates Capital Management, Third Avenue Management, and EMS Capital 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 ESL Investments allocated the biggest weight to Seritage Growth Properties (NYSE:SRG), around 5.85% of its 13F portfolio. Aquamarine Capital Management is also relatively very bullish on the stock, setting aside 2.48 percent of its 13F equity portfolio to SRG.

As one would reasonably expect, some big names have been driving this bullishness. Luxor Capital Group, managed by Christian Leone, assembled the most outsized position in Seritage Growth Properties (NYSE:SRG). Luxor Capital Group had $1.9 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.4 million position during the quarter. The other funds with new positions in the stock are Joe DiMenna’s ZWEIG DIMENNA PARTNERS, Greg Eisner’s Engineers Gate Manager, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Seritage Growth Properties (NYSE:SRG) but similarly valued. These stocks are Gores Metropoulos, Inc. (NASDAQ:GMHI), Colony Credit Real Estate, Inc. (NYSE:CLNC), Gladstone Commercial Corporation (NASDAQ:GOOD), and Ardelyx Inc (NASDAQ:ARDX). This group of stocks’ market valuations are closest to SRG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GMHI 16 134362 -1
CLNC 11 8665 3
GOOD 8 53096 2
ARDX 20 202923 -5
Average 13.75 99762 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $85 million in SRG’s case. Ardelyx Inc (NASDAQ:ARDX) is the most popular stock in this table. On the other hand Gladstone Commercial Corporation (NASDAQ:GOOD) is the least popular one with only 8 bullish hedge fund positions. Seritage Growth Properties (NYSE:SRG) 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 SRG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SRG were disappointed as the stock returned 3.7% 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.