Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor's stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in PS Business Parks Inc (NYSE:PSB)? The smart money sentiment can provide an answer to this question.
Is PSB a good stock to buy now? PS Business Parks Inc (NYSE:PSB) shareholders have witnessed a decrease in hedge fund interest recently. PS Business Parks Inc (NYSE:PSB) was in 17 hedge funds' portfolios at the end of September. The all time high for this statistic is 20. Our calculations also showed that PSB isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Roger Ibbotson of Zebra Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind let's review the latest hedge fund action encompassing PS Business Parks Inc (NYSE:PSB).
Do Hedge Funds Think PSB Is A Good Stock To Buy Now?
At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in PSB over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Osterweis Capital Management held the most valuable stake in PS Business Parks Inc (NYSE:PSB), which was worth $27.1 million at the end of the third quarter. On the second spot was GLG Partners which amassed $15.5 million worth of shares. Balyasny Asset Management, Renaissance Technologies, and Two Sigma Advisors 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 Osterweis Capital Management allocated the biggest weight to PS Business Parks Inc (NYSE:PSB), around 1.83% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 1.18 percent of its 13F equity portfolio to PSB.
Due to the fact that PS Business Parks Inc (NYSE:PSB) has experienced a decline in interest from hedge fund managers, it's easy to see that there exists a select few fund managers who were dropping their full holdings in the third quarter. It's worth mentioning that Greg Poole's Echo Street Capital Management dumped the biggest position of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $23.8 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund dropped about $2.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to PS Business Parks Inc (NYSE:PSB). These stocks are Hudson Pacific Properties Inc (NYSE:HPP), Black Hills Corporation (NYSE:BKH), Inari Medical, Inc. (NASDAQ:NARI), Air Lease Corp (NYSE:AL), Vicor Corp (NASDAQ:VICR), ASGN Incorporated (NYSE:ASGN), and Western Midstream Partners, LP (NYSE:WES). All of these stocks' market caps are similar to PSB's market cap.
[table]Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF PositionHPP,17,311969,-7BKH,22,128780,0NARI,14,105958,-5AL,20,608764,-2VICR,20,75016,1ASGN,21,73967,8WES,10,65743,-1Average,17.7,195742,-0.9[/table]
As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $83 million in PSB's case. Black Hills Corporation (NYSE:BKH) is the most popular stock in this table. On the other hand Western Midstream Partners, LP (NYSE:WES) is the least popular one with only 10 bullish hedge fund positions. PS Business Parks Inc (NYSE:PSB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PSB is 56.7. 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. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately PSB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PSB investors were disappointed as the stock returned 7.9% since the end of September (through 12/14) 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 2020.
Get real-time email alerts: Follow Ps Business Parks Inc (NYSE:PSB)
Disclosure: None. This article was originally published at Insider Monkey.
