Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Welltower Inc. (NYSE:WELL).
Is Welltower Inc. (NYSE:WELL) a safe investment now? The smart money is becoming more confident. The number of long hedge fund bets rose by 1 in recent months. Our calculations also showed that WELL 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). WELL was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with WELL positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 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. 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 believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the recent hedge fund action regarding Welltower Inc. (NYSE:WELL).
What have hedge funds been doing with Welltower Inc. (NYSE:WELL)?
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WELL over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the number one position in Welltower Inc. (NYSE:WELL). Zimmer Partners has a $137.3 million position in the stock, comprising 3% of its 13F portfolio. Coming in second is Healthcor Management LP, led by Arthur B Cohen and Joseph Healey, holding a $72.4 million position; the fund has 3.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish include D. E. Shaw’s D E Shaw, and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Healthcor Management LP allocated the biggest weight to Welltower Inc. (NYSE:WELL), around 3.1% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, setting aside 3.04 percent of its 13F equity portfolio to WELL.
Consequently, specific money managers have jumped into Welltower Inc. (NYSE:WELL) headfirst. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, assembled the largest position in Welltower Inc. (NYSE:WELL). Healthcor Management LP had $72.4 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also initiated a $3.2 million position during the quarter. The other funds with brand new WELL positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Minhua Zhang’s Weld Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Welltower Inc. (NYSE:WELL) but similarly valued. These stocks are TD Ameritrade Holding Corp. (NYSE:AMTD), Entergy Corporation (NYSE:ETR), McCormick & Company, Incorporated (NYSE:MKC), and Schlumberger Limited. (NYSE:SLB). This group of stocks’ market values resemble WELL’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $802 million. That figure was $313 million in WELL’s case. Schlumberger Limited. (NYSE:SLB) is the most popular stock in this table. On the other hand McCormick & Company, Incorporated (NYSE:MKC) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Welltower Inc. (NYSE:WELL) is even less popular than MKC. Hedge funds dodged a bullet by taking a bearish stance towards WELL. 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 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately WELL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); WELL investors were disappointed as the stock returned 23.7% during the second quarter (through June 10th) 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.