Were Hedge Funds Right About Flocking Into EPR Properties (EPR) ?

Reymerlyn Martin

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like EPR Properties (NYSE:EPR).

EPR Properties (NYSE:EPR) has experienced an increase in hedge fund sentiment lately. Our calculations also showed that EPR 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma
John Overdeck of Two Sigma

We're going to take a look at the new hedge fund action encompassing EPR Properties (NYSE:EPR).

How have hedgies been trading EPR Properties (NYSE:EPR)?

Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 69% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in EPR a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

EPR_apr2019
EPR_apr2019

When looking at the institutional investors followed by Insider Monkey, Millennium Management, managed by Israel Englander, holds the largest position in EPR Properties (NYSE:EPR). Millennium Management has a $35.6 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $27.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism encompass Ken Griffin's Citadel Investment Group, Jim Simons's Renaissance Technologies and J. Alan Reid, Jr.'s Forward Management.

As aggregate interest increased, some big names were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, created the most valuable position in EPR Properties (NYSE:EPR). Renaissance Technologies had $21.1 million invested in the company at the end of the quarter. Greg Poole's Echo Street Capital Management also made a $4.9 million investment in the stock during the quarter. The other funds with new positions in the stock are D. E. Shaw's D E Shaw, Matthew Tewksbury's Stevens Capital Management, and Richard Driehaus's Driehaus Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as EPR Properties (NYSE:EPR) but similarly valued. These stocks are The Goodyear Tire & Rubber Company (NASDAQ:GT), United Therapeutics Corporation (NASDAQ:UTHR), Popular Inc (NASDAQ:BPOP), and Polaris Industries Inc. (NYSE:PII). All of these stocks' market caps are closest to EPR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GT,30,589242,5 UTHR,23,972269,5 BPOP,32,804171,4 PII,15,113485,-2 Average,25,619792,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $156 million in EPR's case. Popular Inc (NASDAQ:BPOP) is the most popular stock in this table. On the other hand Polaris Industries Inc. (NYSE:PII) is the least popular one with only 15 bullish hedge fund positions. EPR Properties (NYSE:EPR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on EPR, though not to the same extent, as the stock returned 20.8% and outperformed the market as well.

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

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