Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Independence Realty Trust Inc (NYSE:IRT) was in 12 hedge funds’ portfolios at the end of the third quarter of 2019. IRT has seen an increase in activity from the world’s largest hedge funds recently. There were 8 hedge funds in our database with IRT positions at the end of the previous quarter. Our calculations also showed that IRT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
At the moment there are several methods market participants can use to analyze publicly traded companies. A pair of the less utilized methods are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the top fund managers can outpace the market by a superb margin (see the details here).
James Dondero of Highland Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s analyze the new hedge fund action encompassing Independence Realty Trust Inc (NYSE:IRT).
How have hedgies been trading Independence Realty Trust Inc (NYSE:IRT)?
At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in IRT a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Independence Realty Trust Inc (NYSE:IRT), with a stake worth $84.6 million reported as of the end of September. Trailing Renaissance Technologies was Highland Capital Management, which amassed a stake valued at $6.5 million. Citadel Investment Group, PEAK6 Capital Management, and Ancora 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 Highland Capital Management allocated the biggest weight to Independence Realty Trust Inc (NYSE:IRT), around 0.41% of its 13F portfolio. Caxton Associates is also relatively very bullish on the stock, dishing out 0.1 percent of its 13F equity portfolio to IRT.
As one would reasonably expect, key money managers have jumped into Independence Realty Trust Inc (NYSE:IRT) headfirst. PEAK6 Capital Management, managed by Matthew Hulsizer, established the biggest call position in Independence Realty Trust Inc (NYSE:IRT). PEAK6 Capital Management had $0.8 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $0.3 million investment in the stock during the quarter. The following funds were also among the new IRT investors: Donald Sussman’s Paloma Partners, John Overdeck and David Siegel’s Two Sigma Advisors, and Israel Englander’s Millennium Management.
Let’s go over hedge fund activity in other stocks similar to Independence Realty Trust Inc (NYSE:IRT). We will take a look at Dine Brands Global, Inc. (NYSE:DIN), Seacoast Banking Corporation of Florida (NASDAQ:SBCF), CBIZ, Inc. (NYSE:CBZ), and Tennant Company (NYSE:TNC). This group of stocks’ market valuations are closest to IRT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DIN | 15 | 152183 | 0 |
| SBCF | 6 | 22958 | 0 |
| CBZ | 10 | 177241 | -4 |
| TNC | 10 | 98330 | 4 |
| Average | 10.25 | 112678 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $95 million in IRT’s case. Dine Brands Global, Inc. (NYSE:DIN) is the most popular stock in this table. On the other hand Seacoast Banking Corporation of Florida (NASDAQ:SBCF) is the least popular one with only 6 bullish hedge fund positions. Independence Realty Trust Inc (NYSE:IRT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately IRT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IRT were disappointed as the stock returned 4.4% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
