At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards VICI Properties Inc. (NYSE:VICI) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is VICI Properties Inc. (NYSE:VICI) undervalued? Hedge funds were becoming more confident. The number of long hedge fund bets increased by 15 lately. VICI Properties Inc. (NYSE:VICI) was in 51 hedge funds' portfolios at the end of June. Our calculations also showed that VICI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 56 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Ken Griffin
Ken Griffin of Citadel Investment Group
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let's take a peek at the key hedge fund action regarding VICI Properties Inc. (NYSE:VICI).
How are hedge funds trading VICI Properties Inc. (NYSE:VICI)?
At the end of June, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from one quarter earlier. On the other hand, there were a total of 59 hedge funds with a bullish position in VICI a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Is VICI A Good Stock To Buy?
The largest stake in VICI Properties Inc. (NYSE:VICI) was held by Canyon Capital Advisors, which reported holding $469.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $153.8 million position. Other investors bullish on the company included Gates Capital Management, King Street Capital, and Soros Fund Management. In terms of the portfolio weights assigned to each position 1060 Capital Management allocated the biggest weight to VICI Properties Inc. (NYSE:VICI), around 53.57% of its 13F portfolio. Canyon Capital Advisors is also relatively very bullish on the stock, dishing out 15.71 percent of its 13F equity portfolio to VICI.
As one would reasonably expect, key money managers were breaking ground themselves. Parsifal Capital Management, managed by David Zorub, initiated the most outsized position in VICI Properties Inc. (NYSE:VICI). Parsifal Capital Management had $25.7 million invested in the company at the end of the quarter. Jonathan Litt's Land & Buildings Investment Management also made a $25.6 million investment in the stock during the quarter. The other funds with brand new VICI positions are William Hyatt's Hudson Way Capital Management, Usman Waheed's Strycker View Capital, and Mark Coe's Intrinsic Edge Capital.
Let's also examine hedge fund activity in other stocks similar to VICI Properties Inc. (NYSE:VICI). These stocks are Citizens Financial Group Inc (NYSE:CFG), StoneCo Ltd. (NASDAQ:STNE), United Rentals, Inc. (NYSE:URI), Booz Allen Hamilton Holding Corporation (NYSE:BAH), Cable One Inc (NYSE:CABO), Regions Financial Corporation (NYSE:RF), and Credicorp Ltd. (NYSE:BAP). This group of stocks' market valuations match VICI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CFG,47,841328,1 STNE,35,1342781,1 URI,40,889794,-3 BAH,25,219237,-2 CABO,24,684886,1 RF,26,191710,-11 BAP,20,174521,-2 Average,31,620608,-2.1 [/table]
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $621 million. That figure was $1573 million in VICI's case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand Credicorp Ltd. (NYSE:BAP) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks VICI Properties Inc. (NYSE:VICI) is more popular among hedge funds. Our overall hedge fund sentiment score for VICI is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately VICI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on VICI were disappointed as the stock returned 10.6% since the end of the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
