Hedge Funds Have Never Been This Bullish On AvalonBay Communities Inc (AVB)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards AvalonBay Communities Inc (NYSE:AVB).

AvalonBay Communities Inc (NYSE:AVB) was in 30 hedge funds’ portfolios at the end of the first quarter of 2020. AVB investors should pay attention to an increase in hedge fund interest lately. There were 23 hedge funds in our database with AVB holdings at the end of the previous quarter. Our calculations also showed that AVB 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.

In the 21st century investor’s toolkit there are tons of tools market participants have at their disposal to value publicly traded companies. A duo of the best tools are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the elite hedge fund managers can outclass their index-focused peers by a significant amount (see the details here).

Ricky Sandler of Eminence Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind we’re going to take a glance at the recent hedge fund action encompassing AvalonBay Communities Inc (NYSE:AVB).

How are hedge funds trading AvalonBay Communities Inc (NYSE:AVB)?

Heading into the second quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in AVB a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in AvalonBay Communities Inc (NYSE:AVB), which was worth $74.1 million at the end of the third quarter. On the second spot was Echo Street Capital Management which amassed $63.7 million worth of shares. Balyasny Asset Management, Long Pond Capital, and Citadel Investment Group 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 AvalonBay Communities Inc (NYSE:AVB), around 5.75% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, earmarking 1.7 percent of its 13F equity portfolio to AVB.

As one would reasonably expect, key hedge funds have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in AvalonBay Communities Inc (NYSE:AVB). Balyasny Asset Management had $35.7 million invested in the company at the end of the quarter. John Khoury’s Long Pond Capital also initiated a $33.2 million position during the quarter. The other funds with new positions in the stock are Ricky Sandler’s Eminence Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Charles Davidson and Joseph Jacobs’s Wexford Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AvalonBay Communities Inc (NYSE:AVB) but similarly valued. These stocks are Prudential Financial Inc (NYSE:PRU), Sea Limited (NYSE:SE), IDEXX Laboratories, Inc. (NASDAQ:IDXX), and Yum! Brands, Inc. (NYSE:YUM). This group of stocks’ market caps are closest to AVB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRU 28 367179 -8
SE 76 3132301 0
IDXX 31 517366 -6
YUM 41 558913 5
Average 44 1143940 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $1144 million. That figure was $377 million in AVB’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Prudential Financial Inc (NYSE:PRU) is the least popular one with only 28 bullish hedge fund positions. AvalonBay Communities Inc (NYSE:AVB) 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 AVB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AVB investors were disappointed as the stock returned 6% 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.