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Were Hedge Funds Right About Boston Properties, Inc. (BXP)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Boston Properties, Inc. (NYSE:BXP) and determine whether hedge funds had an edge regarding this stock.

Is Boston Properties, Inc. (NYSE:BXP) a buy here? Hedge funds were turning bullish. The number of long hedge fund bets increased by 9 in recent months. Our calculations also showed that BXP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). BXP was in 29 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with BXP holdings at the end of the previous quarter.

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 58 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.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to take a look at the new hedge fund action regarding Boston Properties, Inc. (NYSE:BXP).

What does smart money think about Boston Properties, Inc. (NYSE:BXP)?

At Q1’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BXP over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the most valuable position in Boston Properties, Inc. (NYSE:BXP), worth close to $36.8 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $35.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish encompass D. E. Shaw’s D E Shaw, Phill Gross and Robert Atchinson’s Adage Capital Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Welch Capital Partners allocated the biggest weight to Boston Properties, Inc. (NYSE:BXP), around 2.29% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, setting aside 0.42 percent of its 13F equity portfolio to BXP.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the biggest position in Boston Properties, Inc. (NYSE:BXP). Marshall Wace LLP had $2.5 million invested in the company at the end of the quarter. Ken Heebner’s Capital Growth Management also initiated a $1.8 million position during the quarter. The following funds were also among the new BXP investors: Greg Eisner’s Engineers Gate Manager, Alec Litowitz and Ross Laser’s Magnetar Capital, and Ray Dalio’s Bridgewater Associates.

Let’s go over hedge fund activity in other stocks similar to Boston Properties, Inc. (NYSE:BXP). These stocks are Garmin Ltd. (NASDAQ:GRMN), Conagra Brands, Inc. (NYSE:CAG), First Republic Bank (NYSE:FRC), and Altice USA, Inc. (NYSE:ATUS). This group of stocks’ market valuations are similar to BXP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GRMN 27 394058 1
CAG 30 538429 1
FRC 28 916056 1
ATUS 47 2396363 -7
Average 33 1061227 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1061 million. That figure was $185 million in BXP’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Garmin Ltd. (NASDAQ:GRMN) is the least popular one with only 27 bullish hedge fund positions. Boston Properties, Inc. (NYSE:BXP) 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately BXP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BXP investors were disappointed as the stock returned -0.9% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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