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Were Hedge Funds Right About Realty Income Corporation (O)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Realty Income Corporation (NYSE:O) based on those filings.

Realty Income Corporation (NYSE:O) investors should be aware of an increase in support from the world’s most elite money managers of late. O was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 18 hedge funds in our database with O positions at the end of the previous quarter. Our calculations also showed that O isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the recent hedge fund action surrounding Realty Income Corporation (NYSE:O).

How are hedge funds trading Realty Income Corporation (NYSE:O)?

Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 44% from the third quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in O a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

More specifically, Zimmer Partners was the largest shareholder of Realty Income Corporation (NYSE:O), with a stake worth $191.5 million reported as of the end of September. Trailing Zimmer Partners was Millennium Management, which amassed a stake valued at $42.5 million. Citadel Investment Group, Adage Capital Management, and AQR Capital Management 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 Hill Winds Capital allocated the biggest weight to Realty Income Corporation (NYSE:O), around 2.83% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, designating 2.65 percent of its 13F equity portfolio to O.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, initiated the most outsized position in Realty Income Corporation (NYSE:O). Paloma Partners had $11.1 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $10.3 million investment in the stock during the quarter. The other funds with brand new O positions are Daniel S. Och’s OZ Management, Matthew Tewksbury’s Stevens Capital Management, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Realty Income Corporation (NYSE:O) but similarly valued. We will take a look at STMicroelectronics N.V. (NYSE:STM), Waste Connections, Inc. (NYSE:WCN), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), and Entergy Corporation (NYSE:ETR). This group of stocks’ market values resemble O’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STM 17 146213 4
WCN 37 623995 3
ALXN 48 2927643 0
ETR 31 1402438 2
Average 33.25 1275072 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $1275 million. That figure was $394 million in O’s case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 17 bullish hedge fund positions. Realty Income Corporation (NYSE:O) 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately O wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); O investors were disappointed as the stock returned -28.6% during the same time period 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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