Hedge Funds Sold Welltower Inc. (WELL) A Little Bit Too Early

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of June 28. In this article, we will use that wealth of knowledge to determine whether or not Welltower Inc. (NYSE:WELL) makes for a good investment right now.

Is Welltower Inc. (NYSE:WELL) a buy here? Investors who are in the know are becoming less hopeful. The number of long hedge fund bets decreased by 6 in recent months. Our calculations also showed that WELL isn’t among the 30 most popular stocks among hedge funds. WELL was in 17 hedge funds’ portfolios at the end of June. There were 23 hedge funds in our database with WELL positions at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a glance at the latest hedge fund action surrounding Welltower Inc. (NYSE:WELL).

How are hedge funds trading Welltower Inc. (NYSE:WELL)?

Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in WELL a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with WELL Positions

Among these funds, Zimmer Partners held the most valuable stake in Welltower Inc. (NYSE:WELL), which was worth $194.6 million at the end of the second quarter. On the second spot was AEW Capital Management which amassed $147.3 million worth of shares. Moreover, Renaissance Technologies, Adage Capital Management, and AQR Capital Management were also bullish on Welltower Inc. (NYSE:WELL), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Welltower Inc. (NYSE:WELL) has experienced a decline in interest from the smart money, logic holds that there is a sect of fund managers that slashed their full holdings heading into Q3. At the top of the heap, Matthew Tewksbury’s Stevens Capital Management dumped the biggest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $3.7 million in stock. Brad Dunkley and Blair Levinsky’s fund, Waratah Capital Advisors, also sold off its stock, about $2.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 6 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to Welltower Inc. (NYSE:WELL). We will take a look at Yum! Brands, Inc. (NYSE:YUM), Advanced Micro Devices, Inc. (NASDAQ:AMD), China Unicom (Hong Kong) Limited (NYSE:CHU), and Valero Energy Corporation (NYSE:VLO). This group of stocks’ market values are similar to WELL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YUM 30 988108 -2
AMD 41 755780 4
CHU 6 64209 -2
VLO 35 792496 -5
Average 28 650148 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $558 million in WELL’s case. Advanced Micro Devices, Inc. (NASDAQ:AMD) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 6 bullish hedge fund positions. Welltower Inc. (NYSE:WELL) 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 (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on WELL as the stock returned 12.3% during the same time frame and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
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.