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Farmland Partners Inc (FPI): Are Hedge Funds Right About This Stock?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Farmland Partners Inc (NYSE:FPI) to find out whether it was one of their high conviction long-term ideas.

Is Farmland Partners Inc (NYSE:FPI) worth your attention right now? The best stock pickers are in a bullish mood. The number of bullish hedge fund bets inched up by 1 lately. Our calculations also showed that FPI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. In December we recommended Adams Energy and the stock gained 20 percent. Let’s go over the recent hedge fund action surrounding Farmland Partners Inc (NYSE:FPI).

Hedge fund activity in Farmland Partners Inc (NYSE:FPI)

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the second quarter of 2019. By comparison, 5 hedge funds held shares or bullish call options in FPI a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, managed by David E. Shaw, holds the number one position in Farmland Partners Inc (NYSE:FPI). D E Shaw has a $2.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Oaktree Capital Management, managed by Howard Marks, which holds a $1.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish include J. Alan Reid, Jr.’s Forward Management, Ken Griffin’s Citadel Investment Group and Paul Marshall and Ian Wace’s Marshall Wace. In terms of the portfolio weights assigned to each position Forward Management allocated the biggest weight to Farmland Partners Inc (NYSE:FPI), around 0.09% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to FPI.

Now, key hedge funds were leading the bulls’ herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the most valuable position in Farmland Partners Inc (NYSE:FPI). Two Sigma Advisors had $0.1 million invested in the company at the end of the quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Farmland Partners Inc (NYSE:FPI) but similarly valued. We will take a look at Investar Holding Corporation (NASDAQ:ISTR), MannKind Corporation (NASDAQ:MNKD), RGC Resources, Inc. (NASDAQ:RGCO), and U.S. Xpress Enterprises, Inc. (NYSE:USX). This group of stocks’ market caps are closest to FPI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ISTR 6 27207 1
MNKD 6 6736 0
RGCO 1 804 0
USX 10 19479 2
Average 5.75 13557 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $6 million in FPI’s case. U.S. Xpress Enterprises, Inc. (NYSE:USX) is the most popular stock in this table. On the other hand RGC Resources, Inc. (NASDAQ:RGCO) is the least popular one with only 1 bullish hedge fund positions. Farmland Partners Inc (NYSE:FPI) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FPI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FPI were disappointed as the stock returned -0.1% during the fourth quarter (through the end of November) 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.

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

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