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Is Extra Space Storage, Inc. (EXR) Going to Burn These Hedge Funds?

In this article we will take a look at whether hedge funds think Extra Space Storage, Inc. (NYSE:EXR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Extra Space Storage, Inc. (NYSE:EXR) investors should be aware of a decrease in hedge fund sentiment recently. EXR was in 16 hedge funds’ portfolios at the end of the first quarter of 2020. There were 28 hedge funds in our database with EXR holdings at the end of the previous quarter. Our calculations also showed that EXR isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 58 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.

Ken Heebner of Capital Growth Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the 10 stocks that went up during the 2008 crash to identify the companies that are likely to deliver double digit returns in up and down markets. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the key 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 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -43% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in EXR over the last 18 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Extra Space Storage, Inc. (NYSE:EXR), which was worth $67.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $42.5 million worth of shares. Capital Growth Management, D E Shaw, and Adage 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 Capital Growth Management allocated the biggest weight to Extra Space Storage, Inc. (NYSE:EXR), around 2.35% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, earmarking 1.87 percent of its 13F equity portfolio to EXR.

Since Extra Space Storage, Inc. (NYSE:EXR) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of money managers that decided to sell off their entire stakes in the first quarter. It’s worth mentioning that Israel Englander’s Millennium Management dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $48.9 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $30.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 12 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Extra Space Storage, Inc. (NYSE:EXR). We will take a look at Energy Transfer L.P. (NYSE:ET), Wheaton Precious Metals Corp. (NYSE:WPM), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), and MPLX LP (NYSE:MPLX). This group of stocks’ market caps are similar to EXR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ET 33 421900 -3
WPM 25 545094 -5
ALNY 34 840647 1
MPLX 11 179942 -4
Average 25.75 496896 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $497 million. That figure was $186 million in EXR’s case. Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 11 bullish hedge fund positions. Extra Space Storage, Inc. (NYSE:EXR) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately EXR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EXR investors were disappointed as the stock returned -3.2% during the second 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.

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