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Is Public Storage (PSA) Going To Burn These Hedge Funds ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 752 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article we look at what those investors think of Public Storage (NYSE:PSA).

Public Storage (NYSE:PSA) has experienced an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that PSA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action encompassing Public Storage (NYSE:PSA).

How are hedge funds trading Public Storage (NYSE:PSA)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in PSA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in Public Storage (NYSE:PSA) was held by Renaissance Technologies, which reported holding $372.8 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $184 million position. Other investors bullish on the company included AQR Capital Management, Arrowstreet Capital, and Adage Capital Management. In terms of the portfolio weights assigned to each position Stevens Capital Management allocated the biggest weight to Public Storage (NYSE:PSA), around 1.05% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, earmarking 0.91 percent of its 13F equity portfolio to PSA.

As one would reasonably expect, key hedge funds have been driving this bullishness. Zimmer Partners, managed by Stuart J. Zimmer, initiated the biggest position in Public Storage (NYSE:PSA). Zimmer Partners had $42.9 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $14.9 million investment in the stock during the quarter. The following funds were also among the new PSA investors: Matthew Tewksbury’s Stevens Capital Management, Alec Litowitz and Ross Laser’s Magnetar Capital, and Benjamin A. Smith’s Laurion Capital Management.

Let’s check out hedge fund activity in other stocks similar to Public Storage (NYSE:PSA). These stocks are Capital One Financial Corp. (NYSE:COF), The Bank of New York Mellon Corporation (NYSE:BK), ABB Ltd (NYSE:ABB), and Koninklijke Philips NV (NYSE:PHG). This group of stocks’ market valuations are similar to PSA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COF 42 1936605 0
BK 50 5638516 17
ABB 13 325803 0
PHG 7 173329 -1
Average 28 2018563 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $2019 million. That figure was $876 million in PSA’s case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 7 bullish hedge fund positions. Public Storage (NYSE:PSA) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PSA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PSA investors were disappointed as the stock returned -14.1% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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

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