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Were Hedge Funds Right About Piling Into Prologis Inc (PLD)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Prologis Inc (NYSE:PLD) and determine whether hedge funds skillfully traded this stock.

Prologis Inc (NYSE:PLD) has experienced an increase in enthusiasm from smart money recently. Our calculations also showed that PLD 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the key hedge fund action encompassing Prologis Inc (NYSE:PLD).

What does smart money think about Prologis Inc (NYSE:PLD)?

At Q1’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in PLD a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Prologis Inc (NYSE:PLD) was held by AQR Capital Management, which reported holding $68.1 million worth of stock at the end of September. It was followed by Adage Capital Management with a $67.7 million position. Other investors bullish on the company included Millennium Management, Castle Hook Partners, and Third Avenue Management. In terms of the portfolio weights assigned to each position Hill Winds Capital allocated the biggest weight to Prologis Inc (NYSE:PLD), around 10.76% of its 13F portfolio. Land & Buildings Investment Management is also relatively very bullish on the stock, setting aside 10.41 percent of its 13F equity portfolio to PLD.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Castle Hook Partners, managed by Josh Donfeld and David Rogers, initiated the most outsized position in Prologis Inc (NYSE:PLD). Castle Hook Partners had $38 million invested in the company at the end of the quarter. Martin Whitman’s Third Avenue Management also initiated a $29.7 million position during the quarter. The other funds with brand new PLD positions are Jonathan Litt’s Land & Buildings Investment Management, Steve Cohen’s Point72 Asset Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Prologis Inc (NYSE:PLD) but similarly valued. We will take a look at Duke Energy Corporation (NYSE:DUK), JD.Com Inc (NASDAQ:JD), Automatic Data Processing, Inc. (NASDAQ:ADP), and Enbridge Inc (NYSE:ENB). This group of stocks’ market valuations are similar to PLD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DUK 35 1573551 -2
JD 90 7919916 27
ADP 46 1444924 -5
ENB 25 297504 4
Average 49 2808974 6

View table here if you experience formatting issues.

As you can see these stocks had an average of 49 hedge funds with bullish positions and the average amount invested in these stocks was $2809 million. That figure was $451 million in PLD’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 25 bullish hedge fund positions. Prologis Inc (NYSE:PLD) 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 PLD wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PLD investors were disappointed as the stock returned 16.8% 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.