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Did Hedge Funds Make The Right Call On UDR, Inc. (UDR) ?

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 thoughtUDR, Inc. (NYSE:UDR) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

UDR, Inc. (NYSE:UDR) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. UDR was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with UDR positions at the end of the previous quarter. Our calculations also showed that UDR 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium 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. With all of this in mind let’s take a peek at the key hedge fund action encompassing UDR, Inc. (NYSE:UDR).

How have hedgies been trading UDR, Inc. (NYSE:UDR)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the fourth quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in UDR a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is UDR A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the most valuable position in UDR, Inc. (NYSE:UDR), worth close to $155.6 million, accounting for 0.2% of its total 13F portfolio. On Renaissance Technologies’s heels is Israel Englander of Millennium Management, with a $37.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism contain Clint Carlson’s Carlson Capital, Phill Gross and Robert Atchinson’s Adage Capital Management and David Harding’s Winton Capital Management. In terms of the portfolio weights assigned to each position Carlson Capital allocated the biggest weight to UDR, Inc. (NYSE:UDR), around 0.46% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.23 percent of its 13F equity portfolio to UDR.

Seeing as UDR, Inc. (NYSE:UDR) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few money managers who were dropping their entire stakes last quarter. Intriguingly, Greg Poole’s Echo Street Capital Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, valued at about $16.6 million in stock. Daniel S. Och’s fund, OZ Management, also said goodbye to its stock, about $2.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as UDR, Inc. (NYSE:UDR) but similarly valued. These stocks are SK Telecom Co., Ltd. (NYSE:SKM), Quest Diagnostics Incorporated (NYSE:DGX), Datadog, Inc. (NASDAQ:DDOG), and XP Inc. (NASDAQ:XP). This group of stocks’ market caps match UDR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SKM 5 117014 -1
DGX 38 383257 7
DDOG 44 860690 12
XP 13 165830 -15
Average 25 381698 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $382 million. That figure was $250 million in UDR’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 5 bullish hedge fund positions. UDR, Inc. (NYSE:UDR) 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 UDR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); UDR investors were disappointed as the stock returned -1.4% 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.