Hedge Funds Are Selling New Residential Investment Corp (NRZ)

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

New Residential Investment Corp (NYSE:NRZ) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. NRZ was in 33 hedge funds’ portfolios at the end of September. There were 38 hedge funds in our database with NRZ holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as PrivateBancorp Inc (NASDAQ:PVTB), Federated Investors Inc (NYSE:FII), and Integrated Device Technology, Inc. (NASDAQ:IDTI) to gather more data points.

At the moment there are a multitude of indicators shareholders can use to value publicly traded companies. A pair of the less known indicators are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the best hedge fund managers can outclass their index-focused peers by a healthy margin (see the details here).

Now, let’s go over the key action surrounding New Residential Investment Corp (NYSE:NRZ).

How have hedgies been trading New Residential Investment Corp (NYSE:NRZ)?

At Q3’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 13% from the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Emanuel J. Friedman’s EJF Capital has the biggest position in New Residential Investment Corp (NYSE:NRZ), worth close to $129.8 million, accounting for 6.3% of its total 13F portfolio. Sitting at the No. 2 spot is Omega Advisors, managed by Leon Cooperman, which holds a $93.9 million position; 1.9% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish contain Brian Jackelow’s SAB Capital Management, Anand Parekh’s Alyeska Investment Group and Michael Blitzer’s Kingstown Capital Management.

Because New Residential Investment Corp (NYSE:NRZ) has faced falling interest from the smart money, we can see that there were a few hedge funds that slashed their full holdings by the end of the third quarter. It’s worth mentioning that Alec Litowitz and Ross Laser’s Magnetar Capital sold off the largest position of all the hedgies monitored by Insider Monkey, comprising about $21.3 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $12.1 million worth of NRZ shares. These bearish behaviors are interesting, as total hedge fund interest was cut by 5 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to New Residential Investment Corp (NYSE:NRZ). We will take a look at PrivateBancorp Inc (NASDAQ:PVTB), Federated Investors Inc (NYSE:FII), Integrated Device Technology, Inc. (NASDAQ:IDTI), and SolarWinds Inc (NYSE:SWI). This group of stocks’ market values match NRZ’s market value.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $358 million. That figure was $674 million in NRZ’s case. Integrated Device Technology, Inc. (NASDAQ:IDTI) is the most popular stock in this table, whereas Federated Investors Inc (NYSE:FII) is the least popular one with only 12 bullish hedge fund positions. New Residential Investment Corp (NYSE:NRZ) is not the most popular stock in this group, but hedge fund interest is still above average. Although this is a slightly positive signal, we’d rather spend our time researching stocks that hedge funds are piling on. In this regard IDTI might be a better candidate to consider a long position.