Is Annaly Capital Management, Inc. (NYSE:NLY) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Annaly Capital Management, Inc. (NYSE:NLY) a buy here? Hedge funds are becoming less hopeful. The number of long hedge fund positions were trimmed by 7 lately. Our calculations also showed that NLY isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s view the new hedge fund action surrounding Annaly Capital Management, Inc. (NYSE:NLY).
Hedge fund activity in Annaly Capital Management, Inc. (NYSE:NLY)
At Q4’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NLY over the last 14 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Annaly Capital Management, Inc. (NYSE:NLY), with a stake worth $93.3 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $28.8 million. Two Sigma Advisors, Bridgewater Associates, and Holocene Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Since Annaly Capital Management, Inc. (NYSE:NLY) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of fund managers who sold off their full holdings in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest stake of the 700 funds watched by Insider Monkey, comprising close to $48.6 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $29.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 7 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Annaly Capital Management, Inc. (NYSE:NLY). We will take a look at MGM Resorts International (NYSE:MGM), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Laboratory Corp. of America Holdings (NYSE:LH), and Yum China Holdings, Inc. (NYSE:YUMC). This group of stocks’ market values are similar to NLY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MGM | 46 | 1590466 | -3 |
| KOF | 6 | 476689 | -2 |
| LH | 38 | 912658 | -2 |
| YUMC | 26 | 478433 | 0 |
| Average | 29 | 864562 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $865 million. That figure was $161 million in NLY’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 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. 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately NLY wasn’t in this group. Hedge funds that bet on NLY were disappointed as the stock returned 5.1% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
