“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk-adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Altisource Residential Corporation (NYSE:RESI) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Altisource Residential Corporation (NYSE:RESI) was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. RESI investors should be aware of an increase in hedge fund sentiment lately. There were 11 hedge funds in our database with RESI positions at the end of the previous quarter. Our calculations also showed that RESI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Paul Tudor Jones of Tudor Investment Corp
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. Let’s go over the latest hedge fund action surrounding Altisource Residential Corporation (NYSE:RESI).
How have hedgies been trading Altisource Residential Corporation (NYSE:RESI)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 36% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RESI over the last 17 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Shoals Capital Management was the largest shareholder of Altisource Residential Corporation (NYSE:RESI), with a stake worth $10.4 million reported as of the end of September. Trailing Shoals Capital Management was Millennium Management, which amassed a stake valued at $6.3 million. GLG Partners, Ellington, and Balyasny Asset 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 Shoals Capital Management allocated the biggest weight to Altisource Residential Corporation (NYSE:RESI), around 14.35% of its 13F portfolio. Almitas Capital is also relatively very bullish on the stock, earmarking 1.63 percent of its 13F equity portfolio to RESI.
As one would reasonably expect, key money managers have jumped into Altisource Residential Corporation (NYSE:RESI) headfirst. Renaissance Technologies established the most valuable position in Altisource Residential Corporation (NYSE:RESI). Renaissance Technologies had $0.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.6 million position during the quarter. The following funds were also among the new RESI investors: Paul Tudor Jones’s Tudor Investment Corp, Cliff Asness’s AQR Capital Management, and Donald Sussman’s Paloma Partners.
Let’s go over hedge fund activity in other stocks similar to Altisource Residential Corporation (NYSE:RESI). These stocks are Organogenesis Holdings Inc. (NASDAQ:ORGO), DBV Technologies SA – ADR (NASDAQ:DBVT), Anterix Inc. (NASDAQ:ATEX), and Echo Global Logistics, Inc. (NASDAQ:ECHO). This group of stocks’ market values resembles RESI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORGO | 2 | 1103 | 0 |
| DBVT | 7 | 112668 | -3 |
| ATEX | 11 | 317816 | 2 |
| ECHO | 20 | 32815 | 8 |
| Average | 10 | 116101 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $34 million in RESI’s case. Echo Global Logistics, Inc. (NASDAQ:ECHO) is the most popular stock in this table. On the other hand, Organogenesis Holdings Inc. (NASDAQ:ORGO) is the least popular one with only 2 bullish hedge fund positions. Altisource Residential Corporation (NYSE:RESI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately, RESI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RESI were disappointed as the stock returned 0.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large-cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
