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Were Hedge Funds Right About Souring On Brandywine Realty Trust (BDN)?

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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Brandywine Realty Trust (NYSE:BDN)? The smart money sentiment can provide an answer to this question.

Brandywine Realty Trust (NYSE:BDN) was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2019. BDN investors should pay attention to a decrease in hedge fund interest in recent months. There were 19 hedge funds in our database with BDN positions at the end of the previous quarter. Our calculations also showed that BDN 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).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s take a look at the fresh hedge fund action surrounding Brandywine Realty Trust (NYSE:BDN).

What does smart money think about Brandywine Realty Trust (NYSE:BDN)?

At Q4’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in BDN over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Brandywine Realty Trust (NYSE:BDN), which was worth $35.7 million at the end of the third quarter. On the second spot was Waterfront Capital Partners which amassed $24.4 million worth of shares. Millennium Management, GLG Partners, and Winton 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 Waterfront Capital Partners allocated the biggest weight to Brandywine Realty Trust (NYSE:BDN), around 3.71% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, designating 0.09 percent of its 13F equity portfolio to BDN.

Judging by the fact that Brandywine Realty Trust (NYSE:BDN) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedgies that decided to sell off their positions entirely heading into Q4. Interestingly, J. Alan Reid, Jr.’s Forward Management sold off the largest position of all the hedgies watched by Insider Monkey, valued at close to $8.2 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund dropped about $2.3 million worth. These transactions are important to note, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Brandywine Realty Trust (NYSE:BDN). We will take a look at SINA Corp (NASDAQ:SINA), Rapid7 Inc (NASDAQ:RPD), El Paso Electric Company (NYSE:EE), and Commscope Holding Company Inc (NASDAQ:COMM). This group of stocks’ market caps match BDN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SINA 18 168492 -2
RPD 23 228346 -5
EE 15 343255 1
COMM 29 968776 5
Average 21.25 427217 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $100 million in BDN’s case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand El Paso Electric Company (NYSE:EE) is the least popular one with only 15 bullish hedge fund positions. Brandywine Realty Trust (NYSE:BDN) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately BDN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BDN investors were disappointed as the stock returned -39.5% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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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