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Hedge Funds Never Been This Bullish On Innovative Industrial Properties, Inc. (IIPR)

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 Innovative Industrial Properties, Inc. (NYSE:IIPR) and determine whether hedge funds had an edge regarding this stock.

Innovative Industrial Properties, Inc. (NYSE:IIPR) was in 20 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. IIPR investors should pay attention to an increase in hedge fund interest in recent months. There were 14 hedge funds in our database with IIPR positions at the end of the first quarter. Our calculations also showed that IIPR 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers after its stock price crashed. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a look at the latest hedge fund action regarding Innovative Industrial Properties, Inc. (NYSE:IIPR).

What does smart money think about Innovative Industrial Properties, Inc. (NYSE:IIPR)?

Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in IIPR over the last 20 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, Zimmer Partners held the most valuable stake in Innovative Industrial Properties, Inc. (NYSE:IIPR), which was worth $79.2 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $23.8 million worth of shares. Millennium Management, Balyasny Asset Management, and D E Shaw 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 Toscafund Asset Management allocated the biggest weight to Innovative Industrial Properties, Inc. (NYSE:IIPR), around 3.73% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, dishing out 1.45 percent of its 13F equity portfolio to IIPR.

As aggregate interest increased, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized position in Innovative Industrial Properties, Inc. (NYSE:IIPR). Balyasny Asset Management had $15.7 million invested in the company at the end of the quarter. Eduardo Abush’s Waterfront Capital Partners also initiated a $8.8 million position during the quarter. The other funds with brand new IIPR positions are Warren Lammert’s Granite Point Capital, Matthew L Pinz’s Pinz Capital, and Martin Hughes’s Toscafund Asset Management.

Let’s check out hedge fund activity in other stocks similar to Innovative Industrial Properties, Inc. (NYSE:IIPR). We will take a look at Hub Group Inc (NASDAQ:HUBG), SkyWest, Inc. (NASDAQ:SKYW), TransAlta Corporation (NYSE:TAC), Commscope Holding Company Inc (NASDAQ:COMM), World Fuel Services Corporation (NYSE:INT), Editas Medicine, Inc. (NASDAQ:EDIT), and Medifast, Inc. (NYSE:MED). This group of stocks’ market caps resemble IIPR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HUBG 21 199671 4
SKYW 16 83235 -2
TAC 12 51703 -3
COMM 32 416743 6
INT 18 82939 5
EDIT 22 126680 6
MED 18 441390 2
Average 19.9 200337 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $185 million in IIPR’s case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand TransAlta Corporation (NYSE:TAC) is the least popular one with only 12 bullish hedge fund positions. Innovative Industrial Properties, Inc. (NYSE:IIPR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IIPR is 40. 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. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on IIPR as the stock returned 42.3% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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