Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze ARMOUR Residential REIT, Inc. (NYSE:ARR) from the perspective of those successful funds.
ARMOUR Residential REIT, Inc. (NYSE:ARR) has experienced an increase in hedge fund sentiment of late. ARR was in 6 hedge funds’ portfolios at the end of the third quarter of 2016. There were 4 hedge funds in our database with ARR positions at the end of the previous quarter. At the end of this article we will also compare ARR to other stocks including Dominion Diamond Corp (NYSE:DDC), Babcock & Wilcox Enterprises Inc (NYSE:BW), and Five9 Inc (NASDAQ:FIVN) to get a better sense of its popularity.
Follow Armour Residential Reit Inc. (NYSE:ARR)
Follow Armour Residential Reit Inc. (NYSE:ARR)
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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With all of this in mind, let’s review the key action encompassing ARMOUR Residential REIT, Inc. (NYSE:ARR).
How have hedgies been trading ARMOUR Residential REIT, Inc. (NYSE:ARR)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in ARR heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Andy Redleaf’s Whitebox Advisors has the number one position in ARMOUR Residential REIT, Inc. (NYSE:ARR), worth close to $18.5 million, amounting to 0.8% of its total 13F portfolio. The second most bullish fund manager is PEAK6 Capital Management, led by Matthew Hulsizer, which holds a $1.3 million call position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish contain Brian Taylor’s Pine River Capital Management, Mike Vranos’s Ellington and Ken Griffin’s Citadel Investment Group. We should note that Whitebox Advisors is 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.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Pine River Capital Management, led by Brian Taylor, initiated the largest position in ARMOUR Residential REIT, Inc. (NYSE:ARR). Pine River Capital Management had $0.9 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also initiated a $0.8 million position during the quarter. The other funds with brand new ARR positions are Ken Griffin’s Citadel Investment Group and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks similar to ARMOUR Residential REIT, Inc. (NYSE:ARR). We will take a look at Dominion Diamond Corp (NYSE:DDC), Babcock & Wilcox Enterprises Inc (NYSE:BW), Five9 Inc (NASDAQ:FIVN), and Flotek Industries Inc (NYSE:FTK). This group of stocks’ market valuations are closest to ARR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DDC | 14 | 73277 | 0 |
| BW | 20 | 198761 | 0 |
| FIVN | 23 | 116555 | 7 |
| FTK | 16 | 167644 | 5 |
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $22 million in ARR’s case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand Dominion Diamond Corp (NYSE:DDC) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks ARMOUR Residential REIT, Inc. (NYSE:ARR) is even less popular than DDC. Considering that hedge funds aren’t 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. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
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