Hedge Funds Are Souring On Realty Income Corporation (O)

In this article we will check out the progression of hedge fund sentiment towards Realty Income Corporation (NYSE:O) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Realty Income Corporation (NYSE:O) was in 22 hedge funds’ portfolios at the end of September. The all time high for this statistic is 26. O shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 23 hedge funds in our database with O holdings at the end of June. Our calculations also showed that O isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a look at the fresh hedge fund action surrounding Realty Income Corporation (NYSE:O).

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

Do Hedge Funds Think O Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2021, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in O over the last 25 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, Millennium Management held the most valuable stake in Realty Income Corporation (NYSE:O), which was worth $60.6 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $59.5 million worth of shares. Balyasny Asset Management, D E Shaw, and Tudor Investment Corp 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 Hill Winds Capital allocated the biggest weight to Realty Income Corporation (NYSE:O), around 3.82% of its 13F portfolio. Cinctive Capital Management is also relatively very bullish on the stock, setting aside 0.41 percent of its 13F equity portfolio to O.

Because Realty Income Corporation (NYSE:O) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of hedge funds who sold off their positions entirely in the third quarter. At the top of the heap, Donald Sussman’s Paloma Partners dumped the biggest stake of the 750 funds monitored by Insider Monkey, totaling close to $6.1 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Realty Income Corporation (NYSE:O) but similarly valued. These stocks are Coca-Cola Europacific Partners PLC (NASDAQ:CCEP), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), Toast Inc. (NYSE:TOST), CDW Corporation (NASDAQ:CDW), Avantor, Inc. (NYSE:AVTR), Ryanair Holdings plc (NASDAQ:RYAAY), and Franco-Nevada Corporation (NYSE:FNV). This group of stocks’ market caps resemble O’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCEP 32 1192664 1
TLK 4 170252 -1
TOST 38 567350 38
CDW 37 1906004 10
AVTR 53 2439815 9
RYAAY 15 411390 0
FNV 26 951083 3
Average 29.3 1091223 8.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $1091 million. That figure was $275 million in O’s case. Avantor, Inc. (NYSE:AVTR) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. Realty Income Corporation (NYSE:O) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for O is 47.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on O as the stock returned 15.1% since the end of the third quarter (through 12/31) and outperformed the market by an even larger margin.

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