Hedge Funds Were Dumping Vereit Inc (VER) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Vereit Inc (NYSE:VER)? The smart money sentiment can provide an answer to this question.

Is Vereit Inc (NYSE:VER) an outstanding investment today? The smart money is taking a pessimistic view. The number of bullish hedge fund positions dropped by 9 recently. Our calculations also showed that VER isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

At the moment there are plenty of tools shareholders employ to size up publicly traded companies. A duo of the most underrated tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the best money managers can trounce the S&P 500 by a solid amount (see the details here).

Jeffrey Tannenbaum of Fir Tree

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action regarding Vereit Inc (NYSE:VER).

What does smart money think about Vereit Inc (NYSE:VER)?

At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from the third quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in VER 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.

More specifically, Eminence Capital was the largest shareholder of Vereit Inc (NYSE:VER), with a stake worth $128.5 million reported as of the end of September. Trailing Eminence Capital was Fir Tree, which amassed a stake valued at $82.6 million. Redwood Capital Management, Glendon Capital Management, 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 Courage Capital allocated the biggest weight to Vereit Inc (NYSE:VER), around 55.14% of its 13F portfolio. Glendon Capital Management is also relatively very bullish on the stock, setting aside 17.18 percent of its 13F equity portfolio to VER.

Seeing as Vereit Inc (NYSE:VER) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds that decided to sell off their full holdings in the third quarter. Interestingly, John Khoury’s Long Pond Capital dumped the largest investment of all the hedgies monitored by Insider Monkey, worth close to $51.3 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also cut its stock, about $35.3 million worth. These transactions are interesting, as total hedge fund interest was cut by 9 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Vereit Inc (NYSE:VER) but similarly valued. These stocks are SEI Investments Company (NASDAQ:SEIC), Crown Holdings, Inc. (NYSE:CCK), Henry Schein, Inc. (NASDAQ:HSIC), and Mohawk Industries, Inc. (NYSE:MHK). This group of stocks’ market values resemble VER’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SEIC 29 351644 3
CCK 58 1378457 16
HSIC 36 1379739 12
MHK 40 1437266 5
Average 40.75 1136777 9

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 $1137 million. That figure was $550 million in VER’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand SEI Investments Company (NASDAQ:SEIC) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Vereit Inc (NYSE:VER) is even less popular than SEIC. Hedge funds dodged a bullet by taking a bearish stance towards VER. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately VER wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VER investors were disappointed as the stock returned -40.4% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
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.