How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding New Residential Investment Corp (NYSE:NRZ).
Is NRZ a good stock to buy now? New Residential Investment Corp (NYSE:NRZ) was in 21 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 33. NRZ investors should pay attention to a decrease in hedge fund interest of late. There were 22 hedge funds in our database with NRZ holdings at the end of June. Our calculations also showed that NRZ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are dozens of formulas investors have at their disposal to evaluate their stock investments. A duo of the most useful formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the elite hedge fund managers can beat the S&P 500 by a superb margin (see the details here).
Joel Greenblatt of Gotham Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to view the new hedge fund action regarding New Residential Investment Corp (NYSE:NRZ).
Do Hedge Funds Think NRZ Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the second quarter of 2020. By comparison, 20 hedge funds held shares or bullish call options in NRZ a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the most valuable position in New Residential Investment Corp (NYSE:NRZ). Arrowstreet Capital has a $44 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Rubric Capital Management, led by David Rosen, holding a $25.5 million position; the fund has 2.4% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism contain Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and Emanuel J. Friedman’s EJF Capital. In terms of the portfolio weights assigned to each position Rubric Capital Management allocated the biggest weight to New Residential Investment Corp (NYSE:NRZ), around 2.38% of its 13F portfolio. Ellington is also relatively very bullish on the stock, designating 1.09 percent of its 13F equity portfolio to NRZ.
Seeing as New Residential Investment Corp (NYSE:NRZ) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there exists a select few funds who were dropping their positions entirely in the third quarter. It’s worth mentioning that Louis Bacon’s Moore Global Investments dumped the biggest investment of all the hedgies followed by Insider Monkey, totaling an estimated $25 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund dumped about $1.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as New Residential Investment Corp (NYSE:NRZ) but similarly valued. We will take a look at EQT Corporation (NYSE:EQT), Granite Real Estate Investment Trust (NYSE:GRP), Saia Inc (NASDAQ:SAIA), J2 Global Inc (NASDAQ:JCOM), Armstrong World Industries, Inc. (NYSE:AWI), Seaboard Corporation (NYSE:SEB), and PNM Resources, Inc. (NYSE:PNM). This group of stocks’ market valuations are closest to NRZ’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EQT | 39 | 310693 | 5 |
| GRP | 6 | 29425 | 0 |
| SAIA | 20 | 67732 | 3 |
| JCOM | 25 | 222865 | -5 |
| AWI | 30 | 351590 | -4 |
| SEB | 16 | 120834 | 2 |
| PNM | 23 | 385999 | -2 |
| Average | 22.7 | 212734 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $213 million. That figure was $134 million in NRZ’s case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 6 bullish hedge fund positions. New Residential Investment Corp (NYSE:NRZ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NRZ is 45.8. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on NRZ as the stock returned 20.3% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
