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Does Extra Space Storage, Inc. (EXR) Deserve a Space in Your Portfolio?

A market correction in the third quarter spurred by a number of global macroeconomic concerns ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 14 percentage points between June 25 and the end of October. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller-cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of Extra Space Storage, Inc. (NYSE:EXR) during the quarter.

Extra Space Storage, Inc. (NYSE:EXR) has experienced an increase in activity from the world’s largest hedge funds in recent months. EXR was in 16 hedge funds’ portfolios at the end of the third quarter of 2015. There were 13 hedge funds in our database with EXR holdings at the end of the previous quarter. At the end of this article we will also compare EXR to other stocks including Cintas Corporation (NASDAQ:CTAS), Cna Financial Corp (NYSE:CNA), and Federal Realty Investment Trust (NYSE:FRT) to get a better sense of its popularity.

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In the eyes of most shareholders, hedge funds are viewed as unimportant, outdated financial vehicles of the past. While there are more than 8,000 funds in operation at present, our experts look at the top tier of this club, approximately 700 funds. Most estimates calculate that this group of people have their hands on the majority of all hedge funds’ total capital, and by following their finest investments, Insider Monkey has unsheathed a few investment strategies that have historically defeated the market. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, let’s check out the fresh action encompassing Extra Space Storage, Inc. (NYSE:EXR).

Hedge fund activity in Extra Space Storage, Inc. (NYSE:EXR)

Heading into Q4, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 23% rise from the previous quarter. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or had already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Heebner’s Capital Growth Management has the largest position in Extra Space Storage, Inc. (NYSE:EXR), worth close to $66.7 million, accounting for 2.2% of its total 13F portfolio. The second-largest stake is held by AEW Capital Management, managed by Jeffrey Furber, which holds a $44.4 million position; 1% of its 13F portfolio is allocated to the company. Some other peers that hold long positions contain Ken Fisher’s Fisher Asset Management, Israel Englander’s Millennium Management, and James Dondero’s Highland Capital Management.

As industrywide interest jumped, key money managers have been driving this bullishness. Highland Capital Management assembled the most outsized position in Extra Space Storage, Inc. (NYSE:EXR). Highland Capital Management had $13.4 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $12.4 million position during the quarter. The following funds were also among the new EXR investors: Peter Muller’s PDT Partners, Michael Platt and William Reeves’ BlueCrest Capital Mgmt., and David S. Winter and David J. Millstone’s 40 North Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Extra Space Storage, Inc. (NYSE:EXR) but similarly valued. We will take a look at Cintas Corporation (NASDAQ:CTAS), Cna Financial Corp (NYSE:CNA), Federal Realty Investment Trust (NYSE:FRT), and BorgWarner Inc. (NYSE:BWA). This group of stocks’ market values resemble EXR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTAS 27 1037662 -1
CNA 11 34608 0
FRT 13 221734 8
BWA 28 485063 2

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $227 million in EXR’s case. BorgWarner Inc. (NYSE:BWA) is the most popular stock in this table. On the other hand Cna Financial Corp (NYSE:CNA) is the least popular one with only 11 bullish hedge fund positions. Extra Space Storage, Inc. (NYSE:EXR) is not the least popular stock in this group but hedge fund interest and share ownership 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. In this regard BWA and CTAS might be better candidates to consider for long positions.

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