Hedge Funds Dipping Their Toes Into Vereit Inc (VER)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Vereit Inc (NYSE:VER) and determine whether hedge funds skillfully traded this stock.

Is Vereit Inc (NYSE:VER) ready to rally soon? Prominent investors were in an optimistic mood. The number of long hedge fund positions went up by 5 lately. Vereit Inc (NYSE:VER) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. Our calculations also showed that VER isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 18 hedge funds in our database with VER positions at the end of the first 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 56 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.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers after its stock price crashed. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to review the latest hedge fund action surrounding Vereit Inc (NYSE:VER).

How are hedge funds trading Vereit Inc (NYSE:VER)?

At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VER over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in Vereit Inc (NYSE:VER) was held by Redwood Capital Management, which reported holding $173 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $81.6 million position. Other investors bullish on the company included Glendon Capital Management, Zimmer Partners, and Land & Buildings Investment Management. In terms of the portfolio weights assigned to each position Redwood Capital Management allocated the biggest weight to Vereit Inc (NYSE:VER), around 18.4% of its 13F portfolio. Glendon Capital Management is also relatively very bullish on the stock, setting aside 15.56 percent of its 13F equity portfolio to VER.

Now, key money managers have jumped into Vereit Inc (NYSE:VER) headfirst. Zimmer Partners, managed by Stuart J. Zimmer, initiated the largest position in Vereit Inc (NYSE:VER). Zimmer Partners had $38.6 million invested in the company at the end of the quarter. Jonathan Litt’s Land & Buildings Investment Management also initiated a $26.8 million position during the quarter. The other funds with brand new VER positions are Jared Nussbaum’s Nut Tree Capital, Eduardo Abush’s Waterfront Capital Partners, and Daniel Johnson’s Gillson Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Vereit Inc (NYSE:VER). We will take a look at Service Corporation International (NYSE:SCI), Howmet Aerospace Inc. (NYSE:HWM), Solaredge Technologies Inc (NASDAQ:SEDG), Sociedad Quimica y Minera de Chile S.A. (NYSE:SQM), Westlake Chemical Corporation (NYSE:WLK), Cabot Oil & Gas Corporation (NYSE:COG), and Algonquin Power & Utilities Corp. (NYSE:AQN). All of these stocks’ market caps are closest to VER’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SCI 27 524384 -3
HWM 30 2360525 5
SEDG 25 435719 -2
SQM 14 91324 4
WLK 29 165262 9
COG 31 237488 -6
AQN 13 283894 -1
Average 24.1 585514 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $586 million. That figure was $491 million in VER’s case. Cabot Oil & Gas Corporation (NYSE:COG) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 13 bullish hedge fund positions. Vereit Inc (NYSE:VER) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VER is 53.5. 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. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately VER wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VER investors were disappointed as the stock returned 2.3% in the third 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.