At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Alexandria Real Estate Equities Inc (NYSE:ARE) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Alexandria Real Estate Equities Inc (NYSE:ARE) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. ARE shareholders have witnessed a decrease in hedge fund interest lately. There were 29 hedge funds in our database with ARE positions at the end of the first quarter. Our calculations also showed that ARE 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.
In the financial world there are many gauges stock market investors can use to assess stocks. Two of the most underrated gauges are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top investment managers can outperform their index-focused peers by a healthy amount (see the details here).
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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. With all of this in mind let’s go over the key hedge fund action surrounding Alexandria Real Estate Equities Inc (NYSE:ARE).
Hedge fund activity in Alexandria Real Estate Equities Inc (NYSE:ARE)
At second quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ARE over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Adage Capital Management was the largest shareholder of Alexandria Real Estate Equities Inc (NYSE:ARE), with a stake worth $23.7 million reported as of the end of September. Trailing Adage Capital Management was Citadel Investment Group, which amassed a stake valued at $12.9 million. Winton Capital Management, Brasada Capital Management, and PEAK6 Capital 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 Brasada Capital Management allocated the biggest weight to Alexandria Real Estate Equities Inc (NYSE:ARE), around 1.27% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, designating 0.72 percent of its 13F equity portfolio to ARE.
Since Alexandria Real Estate Equities Inc (NYSE:ARE) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that decided to sell off their full holdings heading into Q3. Intriguingly, Jonathan Litt’s Land & Buildings Investment Management dumped the largest position of all the hedgies monitored by Insider Monkey, worth an estimated $25.3 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $18.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 11 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Alexandria Real Estate Equities Inc (NYSE:ARE) but similarly valued. We will take a look at Realty Income Corporation (NYSE:O), Hilton Worldwide Holdings Inc (NYSE:HLT), Rogers Communications Inc. (NYSE:RCI), D.R. Horton, Inc. (NYSE:DHI), Southwest Airlines Co. (NYSE:LUV), Corteva, Inc. (NYSE:CTVA), and Old Dominion Freight Line, Inc. (NASDAQ:ODFL). All of these stocks’ market caps are closest to ARE’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.3 hedge funds with bullish positions and the average amount invested in these stocks was $1316 million. That figure was $53 million in ARE’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 16 bullish hedge fund positions. Alexandria Real Estate Equities Inc (NYSE:ARE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ARE is 14.6. 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 negative signal and 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately ARE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ARE investors were disappointed as the stock returned -0.7% in the third quarter 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 most of these stocks already outperformed the market in 2020.
Follow Alexandria Real Estate Equities Inc. (NYSE:ARE)
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Disclosure: None. This article was originally published at Insider Monkey.