Is AG Mortgage Investment Trust Inc (MITT) Going to Burn Investors?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on AG Mortgage Investment Trust Inc (NYSE:MITT).

AG Mortgage Investment Trust Inc (NYSE:MITT) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the third quarter of 2016, same as at the end of the second quarter. At the end of this article we will also compare MITT to other stocks including Omeros Corporation (NASDAQ:OMER), Heritage Insurance Holdings Inc (NYSE:HRTG), and Gladstone Commercial Corporation (NASDAQ:GOOD) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Hedge fund activity in AG Mortgage Investment Trust Inc (NYSE:MITT)

At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter of 2016. By comparison, 5 hedge funds held shares or bullish call options in MITT heading into this year, so hedge fund ownership of the stock us up slightly in 2016. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Angelo Gordon & Co, led by John M. Angelo and Michael L. Gordon, holds the most valuable position in AG Mortgage Investment Trust Inc (NYSE:MITT). Angelo Gordon & Co has a $6.3 million position in the stock. The second largest stake is held by Andy Redleaf of Whitebox Advisors, with a $2.5 million position. Other members of the smart money with similar optimism contain John Overdeck and David Siegel’s Two Sigma Advisors, Millennium Management, one of the 10 largest hedge funds in the world, and David E. Shaw’s D E Shaw. We should note that Whitebox Advisors is among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

We view hedge fund activity in the stock as unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. 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 D E Shaw).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AG Mortgage Investment Trust Inc (NYSE:MITT) but similarly valued. These stocks are Omeros Corporation (NASDAQ:OMER), Heritage Insurance Holdings Inc (NYSE:HRTG), Gladstone Commercial Corporation (NASDAQ:GOOD), and Mercantile Bank Corp. (NASDAQ:MBWM). This group of stocks’ market caps are similar to MITT’s market cap.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $11 million in MITT’s case. Heritage Insurance Holdings Inc (NYSE:HRTG) is the most popular stock in this table. On the other hand Omeros Corporation (NASDAQ:OMER) is the least popular one with only 3 bullish hedge fund positions. AG Mortgage Investment Trust Inc (NYSE:MITT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HRTG might be a better candidate to consider taking a long position in.

Disclosure: None