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

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves.

Boston Properties, Inc. (NYSE:BXP) investors should be aware of a decrease in hedge fund sentiment recently. BXP was in 23 hedge funds’ portfolios at the end of June. There were 27 hedge funds in our database with BXP holdings at the end of the previous quarter. Our calculations also showed that BXP isn’t among the 30 most popular stocks among hedge funds.

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the key hedge fund action regarding Boston Properties, Inc. (NYSE:BXP).

Hedge fund activity in Boston Properties, Inc. (NYSE:BXP)

At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BXP over the last 16 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds with BXP Positions

Among these funds, AEW Capital Management held the most valuable stake in Boston Properties, Inc. (NYSE:BXP), which was worth $169.6 million at the end of the second quarter. On the second spot was Millennium Management which amassed $52.9 million worth of shares. Moreover, Citadel Investment Group, Renaissance Technologies, and Adage Capital Management were also bullish on Boston Properties, Inc. (NYSE:BXP), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Boston Properties, Inc. (NYSE:BXP) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few hedge funds that elected to cut their full holdings last quarter. Intriguingly, Ray Dalio’s Bridgewater Associates dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, worth about $2.8 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund said goodbye to about $1.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Boston Properties, Inc. (NYSE:BXP) but similarly valued. We will take a look at Hewlett Packard Enterprise Company (NYSE:HPE), Chipotle Mexican Grill, Inc. (NYSE:CMG), Synopsys, Inc. (NASDAQ:SNPS), and Northern Trust Corporation (NASDAQ:NTRS). 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
HPE 28 836943 -2
CMG 37 3383462 2
SNPS 42 1551375 11
NTRS 29 443983 -5
Average 34 1553941 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1554 million. That figure was $420 million in BXP’s case. Synopsys, Inc. (NASDAQ:SNPS) is the most popular stock in this table. On the other hand Hewlett Packard Enterprise Company (NYSE:HPE) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Boston Properties, Inc. (NYSE:BXP) is even less popular than HPE. Hedge funds dodged a bullet by taking a bearish stance towards BXP. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BXP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BXP investors were disappointed as the stock returned 1.2% during the third 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 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019.
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.