Hedge Funds Have Never Been This Bullish On Vornado Realty Trust (VNO)

Is Vornado Realty Trust (NYSE:VNO) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Vornado Realty Trust (NYSE:VNO) investors should be aware of an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that VNO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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. 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.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management Marty Whitman

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the key hedge fund action regarding Vornado Realty Trust (NYSE:VNO).

How have hedgies been trading Vornado Realty Trust (NYSE:VNO)?

At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VNO over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, Long Pond Capital held the most valuable stake in Vornado Realty Trust (NYSE:VNO), which was worth $335 million at the end of the third quarter. On the second spot was Elliott Management which amassed $95.5 million worth of shares. Winton Capital Management, Third Avenue Management, and Balyasny 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 Long Pond Capital allocated the biggest weight to Vornado Realty Trust (NYSE:VNO), around 8.74% of its portfolio. Third Avenue Management is also relatively very bullish on the stock, setting aside 3.57 percent of its 13F equity portfolio to VNO.

As one would reasonably expect, specific money managers have been driving this bullishness. Waterfront Capital Partners, managed by Eduardo Abush, assembled the biggest position in Vornado Realty Trust (NYSE:VNO). Waterfront Capital Partners had $12.7 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $7.9 million position during the quarter. The other funds with new positions in the stock are Richard Driehaus’s Driehaus Capital, Alec Litowitz and Ross Laser’s Magnetar Capital, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks similar to Vornado Realty Trust (NYSE:VNO). We will take a look at BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Lincoln National Corporation (NYSE:LNC), Masco Corporation (NYSE:MAS), and American Airlines Group Inc (NASDAQ:AAL). This group of stocks’ market caps resemble VNO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BMRN 45 1621801 0
LNC 34 1142033 -1
MAS 46 1007912 1
AAL 38 1781432 4
Average 40.75 1388295 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $1388 million. That figure was $725 million in VNO’s case. Masco Corporation (NYSE:MAS) is the most popular stock in this table. On the other hand Lincoln National Corporation (NYSE:LNC) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks Vornado Realty Trust (NYSE:VNO) is even less popular than LNC. Hedge funds dodged a bullet by taking a bearish stance towards VNO. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately VNO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VNO investors were disappointed as the stock returned 2.4% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.

Disclosure: None. This article was originally published at Insider Monkey.