We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Annaly Capital Management, Inc. (NYSE:NLY).
Is Annaly Capital Management, Inc. (NYSE:NLY) worth your attention right now? Hedge funds are reducing their bets on the stock. The number of long hedge fund bets were cut by 6 lately. Our calculations also showed that NLY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). NLY was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. There were 21 hedge funds in our database with NLY positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the fresh hedge fund action surrounding Annaly Capital Management, Inc. (NYSE:NLY).
How are hedge funds trading Annaly Capital Management, Inc. (NYSE:NLY)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in NLY over the last 17 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Annaly Capital Management, Inc. (NYSE:NLY), which was worth $32.9 million at the end of the third quarter. On the second spot was Soros Fund Management which amassed $31 million worth of shares. Adage Capital Management, Winton Capital Management, and Islet Management 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 Soros Fund Management allocated the biggest weight to Annaly Capital Management, Inc. (NYSE:NLY), around 0.86% of its 13F portfolio. Islet Management is also relatively very bullish on the stock, earmarking 0.66 percent of its 13F equity portfolio to NLY.
Due to the fact that Annaly Capital Management, Inc. (NYSE:NLY) has experienced bearish sentiment from the smart money, we can see that there was a specific group of fund managers who sold off their positions entirely heading into Q4. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $16.4 million in stock, and Daniel Johnson’s Gillson Capital was right behind this move, as the fund dumped about $13.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Annaly Capital Management, Inc. (NYSE:NLY) but similarly valued. We will take a look at Alliant Energy Corporation (NYSE:LNT), Spectra Energy Corp. (NYSE:SE), Phillips 66 Partners LP (NYSE:PSXP), and Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF). This group of stocks’ market valuations are closest to NLY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LNT | 21 | 704846 | -5 |
| SE | 64 | 3339840 | 4 |
| PSXP | 4 | 9647 | 1 |
| KOF | 12 | 488410 | 3 |
| Average | 25.25 | 1135686 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $1136 million. That figure was $97 million in NLY’s case. Spectra Energy Corp. (NYSE:SE) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 4 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 calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NLY, though not to the same extent, as the stock returned 6% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
