Is Pennsylvania Real Estate Investment Trust (PEI) Going to Burn These Hedge Funds?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Pennsylvania Real Estate Investment Trust (NYSE:PEI) the right pick for your portfolio? The smart money is getting less optimistic. The number of bullish hedge fund bets dropped by 2 recently. Our calculations also showed that PEI isn’t among the 30 most popular stocks among hedge funds (see the video below). PEI was in 6 hedge funds’ portfolios at the end of June. There were 8 hedge funds in our database with PEI holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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.

John Overdeck of Two Sigma

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the recent hedge fund action surrounding Pennsylvania Real Estate Investment Trust (NYSE:PEI).

How have hedgies been trading Pennsylvania Real Estate Investment Trust (NYSE:PEI)?

At the end of the second quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the first quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in PEI a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with PEI Positions

The largest stake in Pennsylvania Real Estate Investment Trust (NYSE:PEI) was held by ZWEIG DIMENNA PARTNERS, which reported holding $6.4 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $1.7 million position. Other investors bullish on the company included Point72 Asset Management, Citadel Investment Group, and Millennium Management.

Since Pennsylvania Real Estate Investment Trust (NYSE:PEI) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedgies who were dropping their full holdings heading into Q3. At the top of the heap, Cliff Asness’s AQR Capital Management cut the biggest stake of the 750 funds monitored by Insider Monkey, totaling an estimated $1 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $0.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pennsylvania Real Estate Investment Trust (NYSE:PEI) but similarly valued. These stocks are City Office REIT Inc (NYSE:CIO), Waitr Holdings Inc. (NASDAQ:WTRH), Napco Security Technologies Inc (NASDAQ:NSSC), and Nine Energy Service, Inc. (NYSE:NINE). This group of stocks’ market values resemble PEI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CIO 6 24486 1
WTRH 17 135233 -5
NSSC 5 12007 -2
NINE 6 37428 -4
Average 8.5 52289 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $10 million in PEI’s case. Waitr Holdings Inc. (NASDAQ:WTRH) is the most popular stock in this table. On the other hand Napco Security Technologies Inc (NASDAQ:NSSC) is the least popular one with only 5 bullish hedge fund positions. Pennsylvania Real Estate Investment Trust (NYSE:PEI) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PEI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PEI investors were disappointed as the stock returned -8.2% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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