We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Safety, Income & Growth Inc. (NYSE:SAFE) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. SAFE was in 8 hedge funds’ portfolios at the end of September. There were 3 hedge funds in our database with SAFE holdings at the end of the previous quarter. Our calculations also showed that SAFE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the fresh hedge fund action encompassing Safety, Income & Growth Inc. (NYSE:SAFE).
What have hedge funds been doing with Safety, Income & Growth Inc. (NYSE:SAFE)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 167% from the second quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in SAFE a year ago. With hedge funds’ sentiment swirling, 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 Safety, Income & Growth Inc. (NYSE:SAFE) was held by One Fin Capital Management, which reported holding $4.6 million worth of stock at the end of September. It was followed by Winton Capital Management with a $2.1 million position. Other investors bullish on the company included Two Sigma Advisors, PEAK6 Capital Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position One Fin Capital Management allocated the biggest weight to Safety, Income & Growth Inc. (NYSE:SAFE), around 2.57% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to SAFE.
As one would reasonably expect, key hedge funds have been driving this bullishness. One Fin Capital Management, managed by David MacKnight, initiated the most valuable position in Safety, Income & Growth Inc. (NYSE:SAFE). One Fin Capital Management had $4.6 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $2.1 million investment in the stock during the quarter. The following funds were also among the new SAFE investors: Matthew Hulsizer’s PEAK6 Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and David E. Shaw’s D E Shaw.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Safety, Income & Growth Inc. (NYSE:SAFE) but similarly valued. We will take a look at G-III Apparel Group, Ltd. (NASDAQ:GIII), Eldorado Gold Corp (NYSE:EGO), Gannett Co., Inc. (NYSE:GCI), and Medifast, Inc. (NYSE:MED). This group of stocks’ market valuations are closest to SAFE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GIII | 12 | 80887 | -1 |
| EGO | 13 | 137318 | 3 |
| GCI | 17 | 168832 | 3 |
| MED | 22 | 302026 | 3 |
| Average | 16 | 172266 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $12 million in SAFE’s case. Medifast, Inc. (NYSE:MED) is the most popular stock in this table. On the other hand G-III Apparel Group, Ltd. (NASDAQ:GIII) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Safety, Income & Growth Inc. (NYSE:SAFE) is even less popular than GIII. Hedge funds clearly dropped the ball on SAFE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SAFE as the stock returned 34.6% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
