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 each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority 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’ consensus 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 ARMOUR Residential REIT, Inc. (NYSE:ARR).
ARMOUR Residential REIT, Inc. (NYSE:ARR) investors should be aware of an increase in enthusiasm from smart money of late. ARR was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with ARR holdings at the end of the previous quarter. Our calculations also showed that ARR 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.
To most traders, hedge funds are assumed to be slow, old financial vehicles of the past. While there are greater than 8000 funds trading at the moment, Our researchers choose to focus on the moguls of this group, approximately 750 funds. These hedge fund managers orchestrate most of the hedge fund industry’s total capital, and by following their top equity investments, Insider Monkey has deciphered many investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update.
Dmitry Balyasny of Balyasny Asset 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. We’re going to go over the latest hedge fund action regarding ARMOUR Residential REIT, Inc. (NYSE:ARR).
What have hedge funds been doing with ARMOUR Residential REIT, Inc. (NYSE:ARR)?
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the second quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in ARR a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ARMOUR Residential REIT, Inc. (NYSE:ARR) was held by Balyasny Asset Management, which reported holding $17.1 million worth of stock at the end of September. It was followed by Ellington with a $15.3 million position. Other investors bullish on the company included Almitas Capital, Citadel Investment Group, and Winton Capital Management. In terms of the portfolio weights assigned to each position, Almitas Capital allocated the biggest weight to ARMOUR Residential REIT, Inc. (NYSE:ARR), around 13.77% of its 13F portfolio. Ellington is also relatively very bullish on the stock, earmarking 2.76 percent of its 13F equity portfolio to ARR.
As aggregate interest increased, key money managers have jumped into ARMOUR Residential REIT, Inc. (NYSE:ARR) headfirst. Ellington, managed by Mike Vranos, created the largest position in ARMOUR Residential REIT, Inc. (NYSE:ARR). Ellington had $15.3 million invested in the company at the end of the quarter. Ron Mass’s Almitas Capital also initiated a $12.9 million position during the quarter. The other funds with new positions in the stock are David Costen Haley’s HBK Investments, Michael Gelband’s ExodusPoint Capital, and Cliff Asness’s AQR Capital Management.
Let’s check out hedge fund activity in other stocks similar to ARMOUR Residential REIT, Inc. (NYSE:ARR). We will take a look at AtriCure Inc. (NASDAQ:ATRC), Fitbit Inc (NYSE:FIT), Sapiens International Corporation N.V. (NASDAQ:SPNS), and Dicerna Pharmaceuticals Inc (NASDAQ:DRNA). This group of stocks’ market caps is closest to ARR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATRC | 19 | 87624 | -1 |
| FIT | 9 | 69023 | -4 |
| SPNS | 8 | 28907 | 0 |
| DRNA | 20 | 247941 | 4 |
| Average | 14 | 108374 | -0.25 |
View the table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $69 million in ARR’s case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand, Sapiens International Corporation N.V. (NASDAQ:SPNS) is the least popular one with only 8 bullish hedge fund positions. ARMOUR Residential REIT, Inc. (NYSE:ARR) is not the least popular stock in this group but hedge fund interest is still below average. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately, ARR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARR investors were disappointed as the stock returned 5.1% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
