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 Arlington Asset Investment Corp (NYSE:AI).
Hedge fund interest in Arlington Asset Investment Corp (NYSE:AI) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AI 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). At the end of this article we will also compare AI to other stocks including Cogent Biosciences (NASDAQ:UMRX), Almaden Minerals Ltd. (NYSE:AAU), and Luokung Technology Corp (NASDAQ:LKCO) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Today there are plenty of methods stock market investors can use to analyze stocks. A couple of the most underrated methods are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform the broader indices by a healthy margin (see the details here).
John Overdeck of Two Sigma Advisors
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 take a peek at the fresh hedge fund action regarding Arlington Asset Investment Corp (NYSE:AI).
How are hedge funds trading Arlington Asset Investment Corp (NYSE:AI)?
At the end of September, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in AI over the last 21 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Arlington Asset Investment Corp (NYSE:AI), with a stake worth $1.2 million reported as of the end of September. Trailing Renaissance Technologies was Winton Capital Management, which amassed a stake valued at $0.6 million. Millennium Management, D E Shaw, and Citadel Investment Group 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 Winton Capital Management allocated the biggest weight to Arlington Asset Investment Corp (NYSE:AI), around 0.02% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0012 percent of its 13F equity portfolio to AI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Ellington. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Two Sigma Advisors).
Let’s check out hedge fund activity in other stocks similar to Arlington Asset Investment Corp (NYSE:AI). These stocks are Cogent Biosciences (NASDAQ:UMRX), Almaden Minerals Ltd. (NYSE:AAU), Luokung Technology Corp (NASDAQ:LKCO), New Home Company Inc (NYSE:NWHM), Siebert Financial Corp. (NASDAQ:SIEB), Ohio Valley Banc Corp. (NASDAQ:OVBC), and Landmark Bancorp, Inc. (NASDAQ:LARK). All of these stocks’ market caps match AI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UMRX | 10 | 49323 | 8 |
| AAU | 3 | 3738 | 0 |
| LKCO | 1 | 217 | -1 |
| NWHM | 7 | 9971 | 1 |
| SIEB | 1 | 54 | 0 |
| OVBC | 1 | 688 | 0 |
| LARK | 2 | 3208 | 0 |
| Average | 3.6 | 9600 | 1.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.6 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $2 million in AI’s case. Cogent Biosciences (NASDAQ:UMRX) is the most popular stock in this table. On the other hand Luokung Technology Corp (NASDAQ:LKCO) is the least popular one with only 1 bullish hedge fund positions. Arlington Asset Investment Corp (NYSE:AI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AI is 38.8. 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 November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on AI as the stock returned 17.6% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
