Did Hedge Funds Make The Right Call On Vereit Inc (VER) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Vereit Inc (NYSE:VER) and determine whether hedge funds skillfully traded this stock.

Vereit Inc (NYSE:VER) was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. VER has seen a decrease in hedge fund interest of late. There were 28 hedge funds in our database with VER positions at the end of the previous quarter. Our calculations also showed that VER 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

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. With all of this in mind let’s view the recent hedge fund action surrounding Vereit Inc (NYSE:VER).

How have hedgies been trading Vereit Inc (NYSE:VER)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in VER 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.

More specifically, Eminence Capital was the largest shareholder of Vereit Inc (NYSE:VER), with a stake worth $126.7 million reported as of the end of September. Trailing Eminence Capital was Citadel Investment Group, which amassed a stake valued at $71.7 million. Redwood Capital Management, Glendon 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 Glendon Capital Management allocated the biggest weight to Vereit Inc (NYSE:VER), around 13.22% of its 13F portfolio. Redwood Capital Management is also relatively very bullish on the stock, setting aside 8.01 percent of its 13F equity portfolio to VER.

Since Vereit Inc (NYSE:VER) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies who were dropping their full holdings last quarter. It’s worth mentioning that Jeffrey Tannenbaum’s Fir Tree said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, worth an estimated $82.6 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $42.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 10 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Vereit Inc (NYSE:VER) but similarly valued. We will take a look at Healthcare Trust Of America Inc (NYSE:HTA), Exelixis, Inc. (NASDAQ:EXEL), Apartment Investment and Management Co. (NYSE:AIV), and Jones Lang LaSalle Inc (NYSE:JLL). This group of stocks’ market valuations are closest to VER’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HTA 16 106529 5
EXEL 30 935037 7
AIV 21 395202 -3
JLL 26 660081 -4
Average 23.25 524212 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $524 million. That figure was $315 million in VER’s case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Healthcare Trust Of America Inc (NYSE:HTA) is the least popular one with only 16 bullish hedge fund positions. Vereit Inc (NYSE:VER) is not the least popular stock in this group but hedge fund interest is still below average. 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 still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on VER as the stock returned 33.1% since the end of March and outperformed the market by an even larger margin.

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