Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Invesco Mortgage Capital Inc (NYSE:IVR).
Is Invesco Mortgage Capital Inc (NYSE:IVR) going to take off soon? Prominent investors are betting on the stock. The number of long hedge fund bets inched up by 2 recently. Our calculations also showed that ivr isn’t among the 30 most popular stocks among hedge funds.
In the eyes of most stock holders, hedge funds are perceived as unimportant, old investment vehicles of the past. While there are more than 8000 funds with their doors open at the moment, We look at the upper echelon of this club, approximately 750 funds. These money managers control the majority of the smart money’s total asset base, and by monitoring their best picks, Insider Monkey has brought to light a number of investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
Cliff Asness of AQR Capital Management
Let’s take a gander at the latest hedge fund action encompassing Invesco Mortgage Capital Inc (NYSE:IVR).
Hedge fund activity in Invesco Mortgage Capital Inc (NYSE:IVR)
Heading into the second quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in IVR a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Invesco Mortgage Capital Inc (NYSE:IVR), which was worth $53 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $28.5 million worth of shares. Moreover, Millennium Management, AQR Capital Management, and McKinley Capital Management were also bullish on Invesco Mortgage Capital Inc (NYSE:IVR), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, established the biggest position in Invesco Mortgage Capital Inc (NYSE:IVR). Millennium Management had $5.3 million invested in the company at the end of the quarter. Bruce Kovner’s Caxton Associates LP also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Roger Ibbotson’s Zebra Capital Management, Jeffrey Talpins’s Element Capital Management, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s now take a look at hedge fund activity in other stocks similar to Invesco Mortgage Capital Inc (NYSE:IVR). These stocks are Commercial Metals Company (NYSE:CMC), Granite Construction Incorporated (NYSE:GVA), Colony Credit Real Estate, Inc. (NYSE:CLNC), and Evertec Inc (NYSE:EVTC). All of these stocks’ market caps resemble IVR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMC | 11 | 275034 | -6 |
| GVA | 15 | 85145 | 4 |
| CLNC | 6 | 19319 | -1 |
| EVTC | 21 | 267101 | 0 |
| Average | 13.25 | 161650 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $95 million in IVR’s case. Evertec Inc (NYSE:EVTC) is the most popular stock in this table. On the other hand Colony Credit Real Estate, Inc. (NYSE:CLNC) is the least popular one with only 6 bullish hedge fund positions. Invesco Mortgage Capital Inc (NYSE:IVR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on IVR, though not to the same extent, as the stock returned 4.4% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
