How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Highwoods Properties Inc (NYSE:HIW) and determine whether hedge funds had an edge regarding this stock.
Highwoods Properties Inc (NYSE:HIW) was in 30 hedge funds’ portfolios at the end of June. The all time high for this statistics is 24. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. HIW has experienced an increase in activity from the world’s largest hedge funds of late. There were 15 hedge funds in our database with HIW positions at the end of the first quarter. Our calculations also showed that HIW isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Phillip Gross of Adage Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s review the new hedge fund action regarding Highwoods Properties Inc (NYSE:HIW).
How have hedgies been trading Highwoods Properties Inc (NYSE:HIW)?
At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 100% from the first quarter of 2020. On the other hand, there were a total of 13 hedge funds with a bullish position in HIW a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Zimmer Partners was the largest shareholder of Highwoods Properties Inc (NYSE:HIW), with a stake worth $29.9 million reported as of the end of September. Trailing Zimmer Partners was Balyasny Asset Management, which amassed a stake valued at $17.7 million. Millennium Management, Waterfront Capital Partners, and Renaissance Technologies 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 Waterfront Capital Partners allocated the biggest weight to Highwoods Properties Inc (NYSE:HIW), around 2.27% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, earmarking 1.61 percent of its 13F equity portfolio to HIW.
As aggregate interest increased, some big names have jumped into Highwoods Properties Inc (NYSE:HIW) headfirst. Zimmer Partners, managed by Stuart J. Zimmer, created the biggest position in Highwoods Properties Inc (NYSE:HIW). Zimmer Partners had $29.9 million invested in the company at the end of the quarter. Eduardo Abush’s Waterfront Capital Partners also initiated a $13.8 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Michael Gelband’s ExodusPoint Capital, and Phill Gross and Robert Atchinson’s Adage Capital Management.
Let’s go over hedge fund activity in other stocks similar to Highwoods Properties Inc (NYSE:HIW). We will take a look at QTS Realty Trust Inc (NYSE:QTS), Telecom Argentina S.A. (NYSE:TEO), Performance Food Group Company (NYSE:PFGC), Hudson Pacific Properties Inc (NYSE:HPP), The Hanover Insurance Group, Inc. (NYSE:THG), Global Blood Therapeutics Inc (NASDAQ:GBT), and Cyberark Software Ltd (NASDAQ:CYBR). All of these stocks’ market caps are similar to HIW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QTS | 29 | 513230 | 8 |
| TEO | 3 | 33682 | -1 |
| PFGC | 20 | 215689 | -9 |
| HPP | 24 | 437178 | 5 |
| THG | 25 | 133465 | 1 |
| GBT | 31 | 600038 | 8 |
| CYBR | 17 | 187436 | 3 |
| Average | 21.3 | 302960 | 2.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $303 million. That figure was $143 million in HIW’s case. Global Blood Therapeutics Inc (NASDAQ:GBT) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 3 bullish hedge fund positions. Highwoods Properties Inc (NYSE:HIW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HIW is 88.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately HIW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HIW were disappointed as the stock returned -3% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
