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Did Hedge Funds Make The Right Call On Sun Communities Inc (SUI) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Sun Communities Inc (NYSE:SUI) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Sun Communities Inc (NYSE:SUI) the right pick for your portfolio? Investors who are in the know were turning less bullish. The number of bullish hedge fund positions went down by 3 recently. Our calculations also showed that SUI 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). SUI was in 28 hedge funds’ portfolios at the end of March. There were 31 hedge funds in our database with SUI holdings at the end of the previous quarter.

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.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

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 let’s view the latest hedge fund action regarding Sun Communities Inc (NYSE:SUI).

Hedge fund activity in Sun Communities Inc (NYSE:SUI)

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SUI over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SUI A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Sun Communities Inc (NYSE:SUI). Citadel Investment Group has a $83.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds a $66.2 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism contain Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, Stuart J. Zimmer’s Zimmer Partners and Eduardo Abush’s Waterfront Capital Partners. In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Sun Communities Inc (NYSE:SUI), around 8.59% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, earmarking 3.45 percent of its 13F equity portfolio to SUI.

Judging by the fact that Sun Communities Inc (NYSE:SUI) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few funds who were dropping their entire stakes in the first quarter. It’s worth mentioning that Ran Pang’s Quantamental Technologies dumped the largest investment of the 750 funds followed by Insider Monkey, comprising close to $1.1 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $0.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Sun Communities Inc (NYSE:SUI). We will take a look at Pioneer Natural Resources Company (NYSE:PXD), Invitation Homes Inc. (NYSE:INVH), Ryanair Holdings plc (NASDAQ:RYAAY), and Arch Capital Group Ltd. (NASDAQ:ACGL). This group of stocks’ market valuations match SUI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PXD 40 534807 -13
INVH 27 562992 -6
RYAAY 22 550561 0
ACGL 33 733577 10
Average 30.5 595484 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $595 million. That figure was $323 million in SUI’s case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Ryanair Holdings plc (NASDAQ:RYAAY) is the least popular one with only 22 bullish hedge fund positions. Sun Communities Inc (NYSE:SUI) 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 SUI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SUI investors were disappointed as the stock returned 9.3% 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.