As we discussed in the first part of this article, by the end of 2007 hedge funds held nearly 10% of the outstanding shares of an average company listed on U.S stock exchanges. Companies having huge backing from the hedge fund industry in terms of share ownership concentration are commonly referred to as ‘hedge fund hotels’ and in times of crises they can face sharp declines in share price as these money managers check out of their “hotels”. Nonetheless, these stocks make for attractive investments, as they represent companies that multiple smart money investors are extremely bullish on. Let’s now take a look at the next five stocks on our list of ten companies that haven’t gained any kind of traction among hedgies and therefore may not represent very good investments right now. Note that foreign companies such as those listed as (ADR) or (USA) on U.S exchanges have not been considered for the purposes of this article, owing to their general lack of popularity among hedgies.
General Growth Properties Inc (NYSE:GGP)
– Concentration of Ownership (as of September 30): 1.2%
– Investors with Long Positions (as of September 30): 27
– Aggregate Value of Investors’ Holdings (as of September 30): $271.83 Million
While the total number of money managers backing General Growth Properties Inc (NYSE:GGP) increased by five during the July-to-September period, the aggregate value of these holdings slid by $45.26 million. Since the stock rose by 1.3% during this period, it can be concluded that hedgies were generally keen on reducing their exposure to the retail REIT, which offers a dividend yield of 2.93%. Although the company managed to marginally beat bottom line estimates in its financial results for the third quarter, it missed top line expectations. Well-known fund Millennium Management, led by Israel Englander, owns about 3.18 million shares of General Growth Properties Inc (NYSE:GGP).
Synchrony Financial (NYSE:SYF)
– Concentration of Ownership (as of September 30): 1.1%
– Investors with Long Positions (as of September 30): 21
– Aggregate Value of Investors’ Holdings (as of September 30): $291.57 Million
Although the hedge fund concentration in the $25.89 billion consumer financial services company remains very small, hedge funds were fairly bullish towards Synchrony during the third quarter. The total number of hedge funds with ownership of the company increased by eight, while the aggregate value of their holdings appreciated by more than 125%. The investor exuberence came despite a 5.8% fall in Synchrony Financial (NYSE:SYF)’s stock price during this period. So far this year, the stock is trading nearly sideways. Sterne Agee CRT recently upgraded the stock to ‘Buy’ from ‘Neutral’, and has a price target of $38 on it, which suggests upside of about 26%. Matthew Halbower‘s Pentwater Capital Management owns about 3.05 million shares of Synchrony Financial (NYSE:SYF).
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In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not because they are not good at picking stocks on the long side of their portfolios. Hedge funds did in fact manage to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds has returned 102% since the end of August 2012, beat the S&P 500 Index by 53 percentage points (see the details here).