Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Industrial Logistics Properties Trust (NASDAQ:ILPT).
Is ILPT a good stock to buy now? Industrial Logistics Properties Trust (NASDAQ:ILPT) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that ILPT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as The Michaels Companies Inc (NASDAQ:MIK), Southwestern Energy Company (NYSE:SWN), and Global Net Lease, Inc. (NYSE:GNL) to gather more data points.
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 66 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.
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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we’re going to review the latest hedge fund action encompassing Industrial Logistics Properties Trust (NASDAQ:ILPT).
Do Hedge Funds Think ILPT Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in ILPT a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in Industrial Logistics Properties Trust (NASDAQ:ILPT). Renaissance Technologies has a $6.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $4.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions include David Harding’s Winton Capital Management, Cliff Asness’s AQR Capital Management and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Industrial Logistics Properties Trust (NASDAQ:ILPT), around 0.6% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to ILPT.
Seeing as Industrial Logistics Properties Trust (NASDAQ:ILPT) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds who were dropping their full holdings in the third quarter. It’s worth mentioning that Angela Aldrich’s Bayberry Capital Partners sold off the biggest investment of all the hedgies monitored by Insider Monkey, comprising an estimated $19.6 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $6.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Industrial Logistics Properties Trust (NASDAQ:ILPT) but similarly valued. We will take a look at The Michaels Companies Inc (NASDAQ:MIK), Southwestern Energy Company (NYSE:SWN), Global Net Lease, Inc. (NYSE:GNL), Perficient, Inc. (NASDAQ:PRFT), Century Communities, Inc (NYSE:CCS), SiTime Corporation (NASDAQ:SITM), and YPF Sociedad Anonima (NYSE:YPF). This group of stocks’ market valuations match ILPT’s market valuation.
|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 16 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $17 million in ILPT’s case. The Michaels Companies Inc (NASDAQ:MIK) is the most popular stock in this table. On the other hand YPF Sociedad Anonima (NYSE:YPF) is the least popular one with only 5 bullish hedge fund positions. Industrial Logistics Properties Trust (NASDAQ:ILPT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ILPT is 25.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately ILPT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ILPT investors were disappointed as the stock returned 5.8% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.