The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at MFA Financial, Inc. (NYSE:MFA) from the perspective of those successful funds.
MFA Financial, Inc. (NYSE:MFA) was in 11 hedge funds’ portfolios at the end of September. MFA has seen a decrease in hedge fund interest recently. There were 12 hedge funds in our database with MFA holdings at the end of the previous quarter. At the end of this article we will also compare MFA to other stocks including Brinker International, Inc. (NYSE:EAT), Sunstone Hotel Investors Inc (NYSE:SHO), and Kite Pharma Inc (NASDAQ:KITE) to get a better sense of its popularity.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Keeping this in mind, we’re going to take a look at the recent action encompassing MFA Financial, Inc. (NYSE:MFA).
Hedge fund activity in MFA Financial, Inc. (NYSE:MFA)
Heading into the fourth quarter of 2016, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MFA over the last 5 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in MFA Financial, Inc. (NYSE:MFA). Arrowstreet Capital has a $19.4 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, one of the largest hedge funds in the world,, holding a $15 million position; less than 0.1% of its 13F portfolio is allocated to the company. Some other peers that hold long positions include Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Seeing as MFA Financial, Inc. (NYSE:MFA) has witnessed a falling interest from hedge fund managers, logic holds that there were a few hedgies that slashed their positions entirely by the end of the third quarter. Intriguingly, Wayne Cooperman’s Cobalt Capital Management cut the biggest stake of all the investors studied by Insider Monkey, comprising about $9.1 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also dropped its call options, about $0.2 million worth.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MFA Financial, Inc. (NYSE:MFA) but similarly valued. These stocks are Brinker International, Inc. (NYSE:EAT), Sunstone Hotel Investors Inc (NYSE:SHO), Kite Pharma Inc (NASDAQ:KITE), and Manchester United PLC (NYSE:MANU). This group of stocks’ market values match MFA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EAT | 22 | 163128 | -2 |
| SHO | 7 | 22255 | -2 |
| KITE | 27 | 293694 | 8 |
| MANU | 7 | 108652 | -2 |
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $54 million in MFA’s case. Kite Pharma Inc (NASDAQ:KITE) is the most popular stock in this table. On the other hand Sunstone Hotel Investors Inc (NYSE:SHO) is the least popular one with only 7 bullish hedge fund positions. MFA Financial, Inc. (NYSE:MFA) 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. In this regard KITE might be a better candidate to consider taking a long position in.
Disclosure: None
