At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Camden Property Trust (NYSE:CPT) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Camden Property Trust (NYSE:CPT) ready to rally soon? Hedge funds were cutting their exposure. The number of long hedge fund bets decreased by 6 recently. Camden Property Trust (NYSE:CPT) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistics is 32. Our calculations also showed that CPT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 32 hedge funds in our database with CPT holdings at the end of March.
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 56 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, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let’s review the key hedge fund action surrounding Camden Property Trust (NYSE:CPT).
What does smart money think about Camden Property Trust (NYSE:CPT)?
At the end of the second quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CPT over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Long Pond Capital held the most valuable stake in Camden Property Trust (NYSE:CPT), which was worth $123.2 million at the end of the third quarter. On the second spot was V3 Capital which amassed $66.1 million worth of shares. Renaissance Technologies, Echo Street Capital Management, and D E Shaw 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 V3 Capital allocated the biggest weight to Camden Property Trust (NYSE:CPT), around 15.24% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, designating 4.86 percent of its 13F equity portfolio to CPT.
Because Camden Property Trust (NYSE:CPT) has experienced a decline in interest from the smart money, it’s safe to say that there exists a select few fund managers that slashed their full holdings heading into Q3. At the top of the heap, Eduardo Abush’s Waterfront Capital Partners said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, comprising about $25.4 million in stock. Jonathan Litt’s fund, Land & Buildings Investment Management, also dropped its stock, about $21 million worth. These transactions are interesting, as total hedge fund interest fell by 6 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Camden Property Trust (NYSE:CPT) but similarly valued. We will take a look at ICON Public Limited Company (NASDAQ:ICLR), Fortune Brands Home & Security Inc (NYSE:FBHS), NIO Limited (NYSE:NIO), Dr. Reddy’s Laboratories Limited (NYSE:RDY), 10x Genomics, Inc. (NASDAQ:TXG), Crown Holdings, Inc. (NYSE:CCK), and Fastly, Inc. (NYSE:FSLY). This group of stocks’ market values are similar to CPT’s market value.
|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 28.1 hedge funds with bullish positions and the average amount invested in these stocks was $706 million. That figure was $336 million in CPT’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 12 bullish hedge fund positions. Camden Property Trust (NYSE:CPT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CPT is 41.3. 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 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately CPT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CPT investors were disappointed as the stock returned -1% since Q2 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.
Disclosure: None. This article was originally published at Insider Monkey.