Is AvalonBay Communities Inc (AVB) Going to Burn These Hedge Funds?

Is AvalonBay Communities Inc (NYSE:AVB) a sound investment right now? The smart money is selling. The number of long hedge fund bets went down by 2 in recent months.

To most investors, hedge funds are perceived as unimportant, old investment tools of years past. While there are more than 8000 funds in operation at the moment, we at Insider Monkey hone in on the elite of this club, about 450 funds. It is estimated that this group oversees the lion’s share of the hedge fund industry’s total capital, and by keeping an eye on their top investments, we have deciphered a few investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Equally as important, bullish insider trading sentiment is another way to parse down the stock market universe. As the old adage goes: there are a number of incentives for an executive to cut shares of his or her company, but just one, very obvious reason why they would behave bullishly. Many academic studies have demonstrated the useful potential of this method if you understand what to do (learn more here).

Consequently, we’re going to take a look at the key action encompassing AvalonBay Communities Inc (NYSE:AVB).

How are hedge funds trading AvalonBay Communities Inc (NYSE:AVB)?

At Q1’s end, a total of 21 of the hedge funds we track were bullish in this stock, a change of -9% from the previous quarter. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially.

Of the funds we track, AEW Capital Management, managed by Jeffrey Furber, holds the largest position in AvalonBay Communities Inc (NYSE:AVB). AEW Capital Management has a $180.6 million position in the stock, comprising 4.5% of its 13F portfolio. On AEW Capital Management’s heels is D. E. Shaw of D E Shaw, with a $113.4 million position; 0.3% of its 13F portfolio is allocated to the stock. Other hedgies with similar optimism include Ken Griffin’s Citadel Investment Group, Christian Leone’s Luxor Capital Group and Clint Carlson’s Carlson Capital.

Judging by the fact that AvalonBay Communities Inc (NYSE:AVB) has faced bearish sentiment from hedge fund managers, logic holds that there were a few hedge funds who sold off their full holdings at the end of the first quarter. It’s worth mentioning that Ken Heebner’s Capital Growth Management said goodbye to the largest position of the 450+ funds we monitor, valued at an estimated $31.9 million in stock.. Brian Taylor’s fund, Pine River Capital Management, also said goodbye to its stock, about $17.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 2 funds at the end of the first quarter.

How have insiders been trading AvalonBay Communities Inc (NYSE:AVB)?

Insider trading activity, especially when it’s bullish, is best served when the primary stock in question has experienced transactions within the past half-year. Over the last six-month time frame, AvalonBay Communities Inc (NYSE:AVB) has experienced 1 unique insiders purchasing, and 3 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to AvalonBay Communities Inc (NYSE:AVB). These stocks are Camden Property Trust (NYSE:CPT), UDR, Inc. (NYSE:UDR), Plum Creek Timber Co. Inc. (NYSE:PCL), Equity Residential (NYSE:EQR), and American Capital Agency Corp. (NASDAQ:AGNC). All of these stocks are in the reit – residential industry and their market caps are similar to AVB’s market cap.