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Were Hedge Funds Right About Souring On Retail Properties of America Inc (RPAI)?

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. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Retail Properties of America Inc (NYSE:RPAI).

Retail Properties of America Inc (NYSE:RPAI) investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that RPAI 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).

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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.

Ken Griffin CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

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. With all of this in mind let’s take a look at the key hedge fund action surrounding Retail Properties of America Inc (NYSE:RPAI).

Hedge fund activity in Retail Properties of America Inc (NYSE:RPAI)

Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RPAI over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Retail Properties of America Inc (NYSE:RPAI), which was worth $98.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $53.8 million worth of shares. Zimmer Partners, Balyasny Asset Management, and Citadel Investment Group 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 Zimmer Partners allocated the biggest weight to Retail Properties of America Inc (NYSE:RPAI), around 0.44% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, earmarking 0.43 percent of its 13F equity portfolio to RPAI.

Due to the fact that Retail Properties of America Inc (NYSE:RPAI) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedgies who sold off their positions entirely heading into Q4. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, totaling close to $14.8 million in stock, and Matthew Crandall Gilman’s Hill Winds Capital was right behind this move, as the fund said goodbye to about $7.4 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Retail Properties of America Inc (NYSE:RPAI) but similarly valued. These stocks are Texas Capital Bancshares Inc (NASDAQ:TCBI), Fulton Financial Corp (NASDAQ:FULT), Independent Bank Corp (NASDAQ:INDB), and Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). All of these stocks’ market caps resemble RPAI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TCBI 26 251196 4
FULT 14 28333 -3
INDB 14 17622 1
BHVN 35 500626 -1
Average 22.25 199444 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $266 million in RPAI’s case. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is the most popular stock in this table. On the other hand Fulton Financial Corp (NASDAQ:FULT) is the least popular one with only 14 bullish hedge fund positions. Retail Properties of America Inc (NYSE:RPAI) 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 RPAI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RPAI investors were disappointed as the stock returned -58.8% 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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