Heartland Advisors, an investment management firm, published its “Heartland Mid Cap Value Fund” first quarter 2021 investor letter – a copy of which can be downloaded here. A return of 15.81% was delivered by the fund’s institutional class shares for the Q1 of 2021, outperforming its Russell Midcap® Value benchmark that delivered a 13.05% return for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Heartland Mid Cap Value Fund, in its Q1 2021 investor letter, mentioned PS Business Parks, Inc. (NYSE: PSB), and shared their insights on the company. PS Business Parks, Inc. is a Glendale, California-based real estate investment trust company that currently has a $4.2 billion market capitalization. Since the beginning of the year, PSB delivered a 16.26% return, extending its 12-month gains to 38.16%. As of May 13, 2021, the stock closed at $154.48 per share.
Here is what Heartland Mid Cap Value Fund has to say about PS Business Parks, Inc. in its Q1 2021 investor letter:
“Filling a niche. The Real Estate sector continued to add to the strong run it has enjoyed since the COVID-19 lows of early 2020. At that time, we took a stake in PS Business Parks, Inc. (PSB) based on our view that the market was being overly pessimistic about the long-term prospects for the real estate investment trust (REIT). Our actions were validated as the business has been a solid performer in the portfolio.
PS Business Parks operates in the industrial, warehouse, and “flex” (combination of industrial & office) real estate segment. Unlike competitors who often lease tens of thousands of square feet to single tenants, many of PS Business’ clients rent less than 5,000 square feet at a given location. The business also offers shorter leases— usually one to three years—than many of its peers.
The company’s differentiated approach results in fewer competitors and less pricing pressure when seeking to attract tenants. Many investors initially saw the duration of PSB’s leases as a headwind for the business as the economy shut down and prospects for the commercial real estate market were dismal. However, rent collections and commercial activity have proven more resilient than feared, and PSB’s fundamentals appear to be heading in the right direction.
Longer term, we continue to be impressed with PSB’s management team, which has demonstrated a knack for efficient use of capital all while maintaining a strong balance sheet. Management’s focus on highly efficient capital deployment is evidenced by the company’s trailing 10-year free cash flow to invested capital yield of ~9% vs. an industrial real estate investment trust (REIT) peer median of 2%. The yield is impressive in our view, given the company has grown its inventory of square footage by a 10% compounded annualized growth rate over the past two decades.”
Our calculations show that PS Business Parks, Inc. (NYSE: PSB) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, PS Business Parks, Inc. was in 15 hedge fund portfolios, compared to 17 funds in the third quarter. PSB delivered a 7.43% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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 innovative stocks to buy to pick the next Tesla that will deliver a 10x return. 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:
Disclosure: None. This article is originally published at Insider Monkey.