Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not SL Green Realty Corp (NYSE:SLG) makes for a good investment right now.
Is SL Green Realty Corp (NYSE:SLG) a buy here? The best stock pickers are getting less bullish. The number of bullish hedge fund positions went down by 2 recently. Our calculations also showed that SLG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the key hedge fund action regarding SL Green Realty Corp (NYSE:SLG).
How are hedge funds trading SL Green Realty Corp (NYSE:SLG)?
At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in SLG a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of SL Green Realty Corp (NYSE:SLG), with a stake worth $164.1 million reported as of the end of September. Trailing Renaissance Technologies was Levin Easterly Partners, which amassed a stake valued at $79.5 million. Millennium Management, LDR Capital, and Capital Growth 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 LDR Capital allocated the biggest weight to SL Green Realty Corp (NYSE:SLG), around 21.64% of its 13F portfolio. Levin Easterly Partners is also relatively very bullish on the stock, designating 2.23 percent of its 13F equity portfolio to SLG.
Seeing as SL Green Realty Corp (NYSE:SLG) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that elected to cut their entire stakes last quarter. Intriguingly, John Khoury’s Long Pond Capital dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth close to $95.4 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund said goodbye to about $2.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to SL Green Realty Corp (NYSE:SLG). We will take a look at XPO Logistics Inc (NYSE:XPO), Canopy Growth Corporation (NYSE:CGC), Woodward Inc (NASDAQ:WWD), and Guardant Health, Inc. (NASDAQ:GH). This group of stocks’ market valuations resemble SLG’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $953 million. That figure was $447 million in SLG’s case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NYSE:CGC) is the least popular one with only 14 bullish hedge fund positions. SL Green Realty Corp (NYSE:SLG) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately SLG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SLG were disappointed as the stock returned -42.7% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.