Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Is Altisource Residential Corp (NYSE:RESI) a marvelous investment now? The best stock pickers are undeniably getting more optimistic. The number of bullish hedge fund bets improved by 7 recently. RESI was in 13 hedge funds’ portfolios at the end of the third quarter of 2016. There were just 6 hedge funds in our database with RESI holdings at the end of the second quarter. At the end of this article we will also compare RESI to other stocks including Applied Micro Circuits Corporation (NASDAQ:AMCC), Quanex Building Products Corporation (NYSE:NX), and Galapagos NV (ADR) (NASDAQ:GLPG) to get a better sense of its popularity.
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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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What have hedge funds been doing with Altisource Residential Corp (NYSE:RESI)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a 117% surge from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in RESI heading into this year, which fell to as few as 6 by the end of the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Christian Leone’s Luxor Capital Group has the largest position in Altisource Residential Corp (NYSE:RESI), worth close to $34.5 million, corresponding to 1% of its total 13F portfolio. The second largest stake is held by Portolan Capital Management, led by George McCabe, holding a $6.4 million position. Other members of the smart money that hold long positions comprise Andrew Goldman’s Seven Locks Capital Management, Jim Simons’ Renaissance Technologies, and Israel Englander’s Millennium Management. 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.
As aggregate interest increased, some big names have jumped into Altisource Residential Corp (NYSE:RESI) headfirst. Portolan Capital Management assembled the most outsized position in Altisource Residential Corp (NYSE:RESI). Millennium Management also initiated a $2.5 million position during the quarter. The following funds were also among the new RESI investors: Vishal Bhutani and Joshua Bederman’s Pyrrho Capital Management, David E. Shaw’s D E Shaw, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now review hedge fund activity in other stocks similar to Altisource Residential Corp (NYSE:RESI). We will take a look at Applied Micro Circuits Corporation (NASDAQ:AMCC), Quanex Building Products Corporation (NYSE:NX), Galapagos NV (ADR) (NASDAQ:GLPG), and William Lyon Homes (NYSE:WLH). This group of stocks’ market valuations are similar to RESI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMCC | 15 | 94512 | 1 |
| NX | 13 | 45742 | -3 |
| GLPG | 16 | 168438 | 2 |
| WLH | 17 | 298596 | 1 |
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $56 million in RESI’s case. William Lyon Homes (NYSE:WLH) is the most popular stock in this table. On the other hand Quanex Building Products Corporation (NYSE:NX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Altisource Residential Corp (NYSE:RESI) is only as popular as NX. Considering that hedge funds aren’t overly fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news, especially given the Q3 surge in smart money ownership of the stock. We’ll wait to see how hedge funds play it in Q4 to determine whether it’s a great time to invest.
Disclosure: None
