In this article we will take a look at whether hedge funds think Duke Realty Corporation (NYSE:DRE) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Duke Realty Corporation (NYSE:DRE) shareholders have witnessed a decrease in hedge fund sentiment in recent months. DRE was in 16 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with DRE holdings at the end of the previous quarter. Our calculations also showed that DRE 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the 10 stocks that went up during the 2008 crash to identify the companies that are likely to deliver double digit returns in up and down markets. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the new hedge fund action encompassing Duke Realty Corporation (NYSE:DRE).
What have hedge funds been doing with Duke Realty Corporation (NYSE:DRE)?
At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DRE over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Duke Realty Corporation (NYSE:DRE), with a stake worth $17.9 million reported as of the end of September. Trailing Citadel Investment Group was Adage Capital Management, which amassed a stake valued at $13.6 million. D E Shaw, Two Sigma Advisors, and Winton 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 Weld Capital Management allocated the biggest weight to Duke Realty Corporation (NYSE:DRE), around 0.56% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.18 percent of its 13F equity portfolio to DRE.
Due to the fact that Duke Realty Corporation (NYSE:DRE) has faced a decline in interest from the smart money, it’s easy to see that there exists a select few funds that slashed their entire stakes in the first quarter. Interestingly, Renaissance Technologies cut the largest stake of all the hedgies followed by Insider Monkey, valued at about $39.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $19.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 8 funds in the first quarter.
Let’s also examine hedge fund activity in other stocks similar to Duke Realty Corporation (NYSE:DRE). These stocks are Jack Henry & Associates, Inc. (NASDAQ:JKHY), Omnicom Group Inc. (NYSE:OMC), Paycom Software Inc (NYSE:PAYC), and Steris Plc (NYSE:STE). This group of stocks’ market valuations are closest to DRE’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 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $350 million. That figure was $65 million in DRE’s case. Steris Plc (NYSE:STE) is the most popular stock in this table. On the other hand Jack Henry & Associates, Inc. (NASDAQ:JKHY) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Duke Realty Corporation (NYSE:DRE) is even less popular than JKHY. Hedge funds dodged a bullet by taking a bearish stance towards DRE. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately DRE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); DRE investors were disappointed as the stock returned 9% during the second quarter (through June 25th) 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 so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.