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Is Extra Space Storage, Inc. (EXR) A Good Stock To Buy?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Extra Space Storage, Inc. (NYSE:EXR) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that EXR isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

Let’s take a gander at the new hedge fund action regarding Extra Space Storage, Inc. (NYSE:EXR).

How are hedge funds trading Extra Space Storage, Inc. (NYSE:EXR)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EXR over the last 15 quarters. 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 EXR Positions

Among these funds, Arrowstreet Capital held the most valuable stake in Extra Space Storage, Inc. (NYSE:EXR), which was worth $35 million at the end of the first quarter. On the second spot was Millennium Management which amassed $34.3 million worth of shares. Moreover, Citadel Investment Group, Renaissance Technologies, and Adage Capital Management were also bullish on Extra Space Storage, Inc. (NYSE:EXR), allocating a large percentage of their portfolios to this stock.

Because Extra Space Storage, Inc. (NYSE:EXR) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedge funds who were dropping their positions entirely by the end of the third quarter. It’s worth mentioning that Josh Donfeld and David Rogers’s Castle Hook Partners dropped the largest investment of the 700 funds followed by Insider Monkey, worth close to $3.3 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund said goodbye to about $2.8 million worth. These transactions are important to note, as total hedge fund interest was cut by 7 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Extra Space Storage, Inc. (NYSE:EXR). We will take a look at Teck Resources Ltd (NYSE:TECK), CenturyLink, Inc. (NYSE:CTL), ABIOMED, Inc. (NASDAQ:ABMD), and Varian Medical Systems, Inc. (NYSE:VAR). This group of stocks’ market valuations are similar to EXR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TECK 27 1078134 1
CTL 32 1095768 1
ABMD 33 1188513 2
VAR 32 980134 2
Average 31 1085637 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $1086 million. That figure was $162 million in EXR’s case. ABIOMED, Inc. (NASDAQ:ABMD) is the most popular stock in this table. On the other hand Teck Resources Ltd (NYSE:TECK) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Extra Space Storage, Inc. (NYSE:EXR) is even less popular than TECK. Hedge funds clearly dropped the ball on EXR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on EXR as the stock returned 7.9% during the same period and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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