Is Highwoods Properties Inc (HIW) Going to Burn These Hedge Funds?

Reymerlyn Martin

Fri, Jun 28, 2019, 7:15 PM

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Highwoods Properties Inc (NYSE:HIW).

Is Highwoods Properties Inc (NYSE:HIW) going to take off soon? Hedge funds are selling. The number of long hedge fund bets were cut by 3 recently. Our calculations also showed that HIW 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 40 percentage points since May 2014 through May 30, 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.

Let's go over the latest hedge fund action regarding Highwoods Properties Inc (NYSE:HIW).

How are hedge funds trading Highwoods Properties Inc (NYSE:HIW)?

Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the fourth quarter of 2018. On the other hand, there were a total of 16 hedge funds with a bullish position in HIW a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Highwoods Properties Inc (NYSE:HIW), with a stake worth $93.8 million reported as of the end of March. Trailing Renaissance Technologies was Echo Street Capital Management, which amassed a stake valued at $29.7 million. Millennium Management, D E Shaw, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Highwoods Properties Inc (NYSE:HIW) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers that elected to cut their full holdings by the end of the third quarter. Intriguingly, Matthew Tewksbury's Stevens Capital Management cut the largest stake of the "upper crust" of funds tracked by Insider Monkey, comprising close to $2.9 million in stock. George Zweig, Shane Haas and Ravi Chander's fund, Signition LP, also dropped its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks similar to Highwoods Properties Inc (NYSE:HIW). We will take a look at Entegris Inc (NASDAQ:ENTG), CIT Group Inc. (NYSE:CIT), ADT Inc. (NYSE:ADT), and Nuance Communications Inc. (NASDAQ:NUAN). This group of stocks' market valuations resemble HIW's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENTG,22,471301,4 CIT,25,774051,-1 ADT,16,85421,1 NUAN,28,459833,-7 Average,22.75,447652,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $448 million. That figure was $177 million in HIW's case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand ADT Inc. (NYSE:ADT) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Highwoods Properties Inc (NYSE:HIW) is even less popular than ADT. Hedge funds dodged a bullet by taking a bearish stance towards HIW. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately HIW wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HIW investors were disappointed as the stock returned -4.6% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.

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

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