We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Equity Lifestyle Properties, Inc. (NYSE:ELS) 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.
Equity Lifestyle Properties, Inc. (NYSE:ELS) investors should pay attention to an increase in hedge fund sentiment of late. ELS was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 21 hedge funds in our database with ELS positions at the end of the previous quarter. Our calculations also showed that ELS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 41 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.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the recent hedge fund action encompassing Equity Lifestyle Properties, Inc. (NYSE:ELS).
What have hedge funds been doing with Equity Lifestyle Properties, Inc. (NYSE:ELS)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in ELS a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Equity Lifestyle Properties, Inc. (NYSE:ELS), which was worth $334.6 million at the end of the third quarter. On the second spot was Waratah Capital Advisors which amassed $38.2 million worth of shares. Millennium Management, AQR Capital Management, and Horizon 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 Waratah Capital Advisors allocated the biggest weight to Equity Lifestyle Properties, Inc. (NYSE:ELS), around 4.04% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, setting aside 0.5 percent of its 13F equity portfolio to ELS.
As aggregate interest increased, specific money managers have been driving this bullishness. Athanor Capital, managed by Parvinder Thiara, created the most outsized position in Equity Lifestyle Properties, Inc. (NYSE:ELS). Athanor Capital had $1.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $1.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Qing Li’s Sciencast Management, Ian Simm’s Impax Asset Management, and Mike Vranos’s Ellington.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Equity Lifestyle Properties, Inc. (NYSE:ELS) but similarly valued. We will take a look at Lyft, Inc. (NASDAQ:LYFT), Icahn Enterprises LP (NASDAQ:IEP), Duke Realty Corporation (NYSE:DRE), and Continental Resources, Inc. (NYSE:CLR). This group of stocks’ market valuations are closest to ELS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LYFT | 45 | 984290 | 10 |
| IEP | 4 | 12205892 | -1 |
| DRE | 24 | 183153 | 5 |
| CLR | 38 | 569767 | -1 |
| Average | 27.75 | 3485776 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $3486 million. That figure was $480 million in ELS’s case. Lyft, Inc. (NASDAQ:LYFT) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 4 bullish hedge fund positions. Equity Lifestyle Properties, Inc. (NYSE:ELS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on ELS, though not to the same extent, as the stock returned -24.5% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
