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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on QTS Realty Trust Inc (NYSE:QTS).
Is QTS Realty Trust Inc (NYSE:QTS) a worthy investment today? Prominent investors are taking a pessimistic view. The number of bullish hedge fund positions were trimmed by 4 recently. Our calculations also showed that QTS 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to go over the new hedge fund action regarding QTS Realty Trust Inc (NYSE:QTS).
Hedge fund activity in QTS Realty Trust Inc (NYSE:QTS)
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in QTS over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Zimmer Partners held the most valuable stake in QTS Realty Trust Inc (NYSE:QTS), which was worth $113.1 million at the end of the third quarter. On the second spot was Land & Buildings Investment Management which amassed $32.5 million worth of shares. Citadel Investment Group, Hudson Bay Capital Management, and Balyasny Asset 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 Shoals Capital Management allocated the biggest weight to QTS Realty Trust Inc (NYSE:QTS), around 6.32% of its 13F portfolio. Land & Buildings Investment Management is also relatively very bullish on the stock, dishing out 5.99 percent of its 13F equity portfolio to QTS.
Because QTS Realty Trust Inc (NYSE:QTS) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedgies that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Paul Tudor Jones’s Tudor Investment Corp sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising about $3.6 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund said goodbye to about $1.5 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 4 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to QTS Realty Trust Inc (NYSE:QTS). We will take a look at Kodiak Sciences Inc (NASDAQ:KOD), Farfetch Limited (NYSE:FTCH), Stantec Inc. (NYSE:STN), and Barnes Group Inc. (NYSE:B). This group of stocks’ market caps match QTS’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 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $440 million. That figure was $327 million in QTS’s case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Stantec Inc. (NYSE:STN) is the least popular one with only 9 bullish hedge fund positions. QTS Realty Trust Inc (NYSE:QTS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on QTS as the stock returned -3.8% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.