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Hedge Funds Cashing Out Of Essex Property Trust Inc (ESS)

In this article we will check out the progression of hedge fund sentiment towards Essex Property Trust Inc (NYSE:ESS) 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.

Essex Property Trust Inc (NYSE:ESS) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. ESS was in 31 hedge funds’ portfolios at the end of the first quarter of 2020. There were 33 hedge funds in our database with ESS holdings at the end of the previous quarter. Our calculations also showed that ESS 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 51 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.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

With all of this in mind we’re going to take a look at the latest hedge fund action regarding Essex Property Trust Inc (NYSE:ESS).

Hedge fund activity in Essex Property Trust Inc (NYSE:ESS)

At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ESS over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is ESS A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Essex Property Trust Inc (NYSE:ESS), which was worth $123.5 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $54.2 million worth of shares. Third Avenue Management, GLG Partners, and Balyasny Asset 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 Third Avenue Management allocated the biggest weight to Essex Property Trust Inc (NYSE:ESS), around 3.18% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, setting aside 1.62 percent of its 13F equity portfolio to ESS.

Since Essex Property Trust Inc (NYSE:ESS) has faced falling interest from hedge fund managers, we can see that there is a sect of funds that slashed their positions entirely by the end of the first quarter. At the top of the heap, Paul Tudor Jones’s Tudor Investment Corp said goodbye to the largest position of all the hedgies monitored by Insider Monkey, valued at close to $7.5 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund dumped about $4.5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Essex Property Trust Inc (NYSE:ESS). These stocks are Fiat Chrysler Automobiles NV (NYSE:FCAU), Equifax Inc. (NYSE:EFX), Fox Corporation (NASDAQ:FOXA), and Vulcan Materials Company (NYSE:VMC). This group of stocks’ market caps resemble ESS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FCAU 25 395391 2
EFX 32 1300733 0
FOXA 38 1563564 1
VMC 49 1119317 -3
Average 36 1094751 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1095 million. That figure was $368 million in ESS’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Fiat Chrysler Automobiles NV (NYSE:FCAU) is the least popular one with only 25 bullish hedge fund positions. Essex Property Trust Inc (NYSE:ESS) is not the least popular stock in this group but hedge fund interest 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately ESS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ESS investors were disappointed as the stock returned 10.2% during the second quarter 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 in 2020.

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