Were These Hedge Funds Wrong About Piling Into Invitation Homes Inc. (INVH)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Invitation Homes Inc. (NYSE:INVH).

Is Invitation Homes Inc. (NYSE:INVH) going to take off soon? Money managers were turning bullish. The number of bullish hedge fund bets advanced by 6 in recent months. Invitation Homes Inc. (NYSE:INVH) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that INVH isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a glance at the fresh hedge fund action encompassing Invitation Homes Inc. (NYSE:INVH).

Hedge fund activity in Invitation Homes Inc. (NYSE:INVH)

At the end of the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in INVH a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Zimmer Partners held the most valuable stake in Invitation Homes Inc. (NYSE:INVH), which was worth $199.4 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $79.7 million worth of shares. Millennium Management, Woodson Capital Management, and D E Shaw 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 Land & Buildings Investment Management allocated the biggest weight to Invitation Homes Inc. (NYSE:INVH), around 7.64% of its 13F portfolio. Strycker View Capital is also relatively very bullish on the stock, dishing out 5.54 percent of its 13F equity portfolio to INVH.

As aggregate interest increased, key money managers have been driving this bullishness. Long Pond Capital, managed by John Khoury, created the largest position in Invitation Homes Inc. (NYSE:INVH). Long Pond Capital had $33.9 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also initiated a $14.8 million position during the quarter. The other funds with brand new INVH positions are Daniel Johnson’s Gillson Capital, Usman Waheed’s Strycker View Capital, and Ravi Chopra’s Azora Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Invitation Homes Inc. (NYSE:INVH). We will take a look at Check Point Software Technologies Ltd. (NASDAQ:CHKP), Discover Financial Services (NYSE:DFS), Vulcan Materials Company (NYSE:VMC), Telefonica Brasil SA (NYSE:VIV), Quest Diagnostics Incorporated (NYSE:DGX), Cardinal Health, Inc. (NYSE:CAH), and Tractor Supply Company (NASDAQ:TSCO). This group of stocks’ market caps are similar to INVH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.3 hedge funds with bullish positions and the average amount invested in these stocks was $719 million. That figure was $694 million in INVH’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 12 bullish hedge fund positions. Invitation Homes Inc. (NYSE:INVH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for INVH is 66.9. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately INVH wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); INVH investors were disappointed as the stock returned -0.5% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.