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Did Hedge Funds Make The Right Call On Vornado Realty Trust (VNO) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Vornado Realty Trust (NYSE:VNO) and determine whether hedge funds had an edge regarding this stock.

Vornado Realty Trust (NYSE:VNO) has experienced a decrease in enthusiasm from smart money lately. VNO was in 25 hedge funds’ portfolios at the end of March. There were 31 hedge funds in our database with VNO positions at the end of the previous quarter. Our calculations also showed that VNO 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.

John Levin of Levin Capital

John A. Levin of Levin Capital Strategies

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. 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 if you have any good ideas send us an email. With all of this in mind let’s take a peek at the latest hedge fund action encompassing Vornado Realty Trust (NYSE:VNO).

How are hedge funds trading Vornado Realty Trust (NYSE:VNO)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards VNO over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Long Pond Capital held the most valuable stake in Vornado Realty Trust (NYSE:VNO), which was worth $100.4 million at the end of the third quarter. On the second spot was Third Avenue Management which amassed $37 million worth of shares. 40 North Management, Levin Capital Strategies, and AQR Capital Management 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 Third Avenue Management allocated the biggest weight to Vornado Realty Trust (NYSE:VNO), around 5.47% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, setting aside 5.14 percent of its 13F equity portfolio to VNO.

Since Vornado Realty Trust (NYSE:VNO) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers that slashed their full holdings last quarter. It’s worth mentioning that Paul Singer’s Elliott Management cut the biggest position of all the hedgies monitored by Insider Monkey, valued at an estimated $114.4 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $39.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 6 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Vornado Realty Trust (NYSE:VNO) but similarly valued. We will take a look at WABCO Holdings Inc. (NYSE:WBC), AngloGold Ashanti Limited (NYSE:AU), Luckin Coffee Inc. (NASDAQ:LK), and Fidelity National Financial Inc (NYSE:FNF). All of these stocks’ market caps match VNO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WBC 32 1395171 -2
AU 19 399420 2
LK 36 1056167 3
FNF 43 386182 7
Average 32.5 809235 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $809 million. That figure was $224 million in VNO’s case. Fidelity National Financial Inc (NYSE:FNF) is the most popular stock in this table. On the other hand AngloGold Ashanti Limited (NYSE:AU) is the least popular one with only 19 bullish hedge fund positions. Vornado Realty Trust (NYSE:VNO) 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 VNO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VNO investors were disappointed as the stock returned 7.4% 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.