Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like New Residential Investment Corp (NYSE:NRZ).
New Residential Investment Corp (NYSE:NRZ) was in 19 hedge funds’ portfolios at the end of September. NRZ investors should pay attention to an increase in support from the world’s most elite money managers of late. There were 12 hedge funds in our database with NRZ positions at the end of the previous quarter. At the end of this article we will also compare NRZ to other stocks including Energizer Holdings, Inc. (NYSE:ENR), Sensient Technologies Corporation (NYSE:SXT), and ALLETE Inc (NYSE:ALE) to get a better sense of its popularity.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Now, let’s view the recent action regarding New Residential Investment Corp (NYSE:NRZ).
Hedge fund activity in New Residential Investment Corp (NYSE:NRZ)
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 58% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Michael Blitzer’s Kingstown Capital Management has the largest position in New Residential Investment Corp (NYSE:NRZ), worth close to $65.6 million, corresponding to 7.3% of its total 13F portfolio. Coming in second is Emanuel J. Friedman of EJF Capital, with a $43.7 million position; the fund has 3.5% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions encompass Leon Cooperman’s Omega Advisors, Israel Englander’s Millennium Management and Malcolm Fairbairn’s Ascend Capital.
Now, key money managers have been driving this bullishness. EJF Capital, managed by Emanuel J. Friedman, created the most outsized position in New Residential Investment Corp (NYSE:NRZ). EJF Capital had $43.7 million invested in the company at the end of the quarter. Philip Hempleman’s Ardsley Partners also made a $7.6 million investment in the stock during the quarter. The other funds with new positions in the stock are David Rodriguez-Fraile’s BlueMar Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as New Residential Investment Corp (NYSE:NRZ) but similarly valued. These stocks are Energizer Holdings, Inc. (NYSE:ENR), Sensient Technologies Corporation (NYSE:SXT), ALLETE Inc (NYSE:ALE), and Universal Display Corporation (NASDAQ:OLED). All of these stocks’ market caps resemble NRZ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENR | 20 | 273772 | -4 |
| SXT | 16 | 175833 | 7 |
| ALE | 11 | 56449 | -5 |
| OLED | 20 | 122003 | 0 |
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $219 million in NRZ’s case. Energizer Holdings, Inc. (NYSE:ENR) is the most popular stock in this table. On the other hand ALLETE Inc (NYSE:ALE) is the least popular one with only 11 bullish hedge fund positions. New Residential Investment Corp (NYSE:NRZ) 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. In this regard ENR might be a better candidate to consider a long position.
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Disclosure: None
