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Were Hedge Funds Right About Dumping Welltower Inc. (WELL)?

Welltower Inc. (NYSE:WELL) investors should be aware of a decrease in enthusiasm from smart money lately. Our calculations also showed that WELL isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

Phill Gross, Adage Capital Management

Let’s take a glance at the recent hedge fund action surrounding Welltower Inc. (NYSE:WELL).

What does the smart money think about Welltower Inc. (NYSE:WELL)?

Heading into the first quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in WELL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

WELL_mar2019

When looking at the institutional investors followed by Insider Monkey, Jim Simons’s Renaissance Technologies has the biggest position in Welltower Inc. (NYSE:WELL), worth close to $204.1 million, amounting to 0.2% of its total 13F portfolio. Coming in second is AEW Capital Management, managed by Jeffrey Furber, which holds a $166.1 million position; 5.2% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism consist of D. E. Shaw’s D E Shaw, Phill Gross and Robert Atchinson’s Adage Capital Management and Cliff Asness’s AQR Capital Management.

Seeing as Welltower Inc. (NYSE:WELL) has witnessed a decline in interest from the smart money, we can see that there lies a certain “tier” of money managers that slashed their entire stakes last quarter. Intriguingly, Charles Clough’s Clough Capital Partners dropped the largest stake of all the hedgies watched by Insider Monkey, comprising close to $9.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $1.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Welltower Inc. (NYSE:WELL) but similarly valued. These stocks are Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), TE Connectivity Ltd. (NYSE:TEL), Xcel Energy Inc (NASDAQ:XEL), and Canadian Pacific Railway Limited (NYSE:CP). This group of stocks’ market valuations resemble WELL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TLK 6 111079 2
TEL 25 1264806 -5
XEL 21 559185 0
CP 40 2102902 10
Average 23 1009493 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $1009 million. That figure was $484 million in WELL’s case. Canadian Pacific Railway Limited (NYSE:CP) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 6 bullish hedge fund positions. Welltower Inc. (NYSE:WELL) 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately WELL wasn’t in this group. Hedge funds that bet on WELL were disappointed as the stock returned 12.6% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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