Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Annaly Capital Management, Inc. (NYSE:NLY)? The smart money sentiment can provide an answer to this question.
Is Annaly Capital Management, Inc. (NYSE:NLY) ready to rally soon? Hedge funds were becoming more confident. The number of bullish hedge fund bets inched up by 4 recently. Annaly Capital Management, Inc. (NYSE:NLY) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistic is 27. Our calculations also showed that NLY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bruce Kovner of Caxton Associates LP
Keeping this in mind we’re going to take a glance at the latest hedge fund action regarding Annaly Capital Management, Inc. (NYSE:NLY).
Do Hedge Funds Think NLY Is A Good Stock To Buy Now?
At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in NLY a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Annaly Capital Management, Inc. (NYSE:NLY), with a stake worth $37.5 million reported as of the end of June. Trailing Arrowstreet Capital was Renaissance Technologies, which amassed a stake valued at $29.1 million. Citadel Investment Group, HBK Investments, and Citadel Investment Group 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 Neo Ivy Capital allocated the biggest weight to Annaly Capital Management, Inc. (NYSE:NLY), around 0.59% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.14 percent of its 13F equity portfolio to NLY.
As industrywide interest jumped, some big names were breaking ground themselves. HBK Investments, managed by David Costen Haley, assembled the most outsized call position in Annaly Capital Management, Inc. (NYSE:NLY). HBK Investments had $8.9 million invested in the company at the end of the quarter. Mika Toikka’s AlphaCrest Capital Management also initiated a $1.8 million position during the quarter. The following funds were also among the new NLY investors: Bruce Kovner’s Caxton Associates LP, Renee Yao’s Neo Ivy Capital, and Greg Poole’s Echo Street Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Annaly Capital Management, Inc. (NYSE:NLY). These stocks are Texas Pacific Land Trust (NYSE:TPL), Cemex SAB de CV (NYSE:CX), Cna Financial Corporation (NYSE:CNA), Sibanye Stillwater Limited (NYSE:SBSW), Invesco Ltd. (NYSE:IVZ), iQIYI, Inc. (NASDAQ:IQ), and Five9 Inc (NASDAQ:FIVN). This group of stocks’ market valuations match NLY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPL | 21 | 2592325 | 4 |
| CX | 23 | 601778 | -1 |
| CNA | 13 | 65189 | -6 |
| SBSW | 15 | 257887 | -1 |
| IVZ | 40 | 1343997 | 8 |
| IQ | 27 | 1096859 | -13 |
| FIVN | 45 | 2150801 | 0 |
| Average | 26.3 | 1158405 | -1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $1158 million. That figure was $98 million in NLY’s case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 13 bullish hedge fund positions. Annaly Capital Management, Inc. (NYSE:NLY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NLY is 39.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately NLY wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); NLY investors were disappointed as the stock returned 0.4% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Annaly Capital Management Inc (NYSE:NLY)
Follow Annaly Capital Management Inc (NYSE:NLY)
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Disclosure: None. This article was originally published at Insider Monkey.
