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Were Hedge Funds Right About Essex Property Trust Inc (ESS)?

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 821 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 March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Essex Property Trust Inc (NYSE:ESS) and determine whether the smart money was really smart about this stock.

Essex Property Trust Inc (NYSE:ESS) has seen a decrease in hedge fund sentiment in recent months. ESS was in 31 hedge funds’ portfolios at the end of March. There were 33 hedge funds in our database with ESS positions at the end of the previous quarter. Our calculations also showed that ESS 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).

Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Och-Ziff Capital Management

Daniel Och, Founder of OZ Management

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. With all of this in mind let’s take a look at the new hedge fund action surrounding Essex Property Trust Inc (NYSE:ESS).

What have hedge funds been doing with Essex Property Trust Inc (NYSE:ESS)?

Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in ESS a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is ESS A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey,  Renaissance Technologies has the biggest position in Essex Property Trust Inc (NYSE:ESS), worth close to $123.5 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $54.2 million position; 0.2% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism comprise Martin Whitman’s Third Avenue Management, Noam Gottesman’s GLG Partners and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Essex Property Trust Inc (NYSE:ESS), around 3.18% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, designating 1.62 percent of its 13F equity portfolio to ESS.

Seeing as Essex Property Trust Inc (NYSE:ESS) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds that elected to cut their entire stakes heading into Q4. At the top of the heap, Paul Tudor Jones’s Tudor Investment Corp said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $7.5 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund dropped about $4.5 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Essex Property Trust Inc (NYSE:ESS) but similarly valued. We will take a look at Fiat Chrysler Automobiles NV (NYSE:FCAU), Equifax Inc. (NYSE:EFX), Fox Corporation (NASDAQ:FOXA), and Vulcan Materials Company (NYSE:VMC). This group of stocks’ market valuations are closest to ESS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FCAU 25 395391 2
EFX 32 1300733 0
FOXA 38 1563564 1
VMC 49 1119317 -3
Average 36 1094751 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1095 million. That figure was $368 million in ESS’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Fiat Chrysler Automobiles NV (NYSE:FCAU) is the least popular one with only 25 bullish hedge fund positions. Essex Property Trust Inc (NYSE:ESS) 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 ESS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ESS investors were disappointed as the stock returned 5% 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.