Smart Money Is Gaining Confidence in American Homes 4 Rent (AMH)

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards American Homes 4 Rent (NYSE:AMH), and what that likely means for the prospects of the company and its stock.

American Homes 4 Rent (NYSE:AMH) was in 19 hedge funds’ portfolios at the end of the third quarter of 2016. AMH has seen an increase in activity from the world’s largest hedge funds recently. There were 14 hedge funds in our database with AMH positions at the end of the previous quarter. At the end of this article we will also compare AMH to other stocks including Bemis Company, Inc. (NYSE:BMS), AECOM Technology Corp (NYSE:ACM), and The Toro Company (NYSE:TTC) to get a better sense of its popularity.

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How are hedge funds trading American Homes 4 Rent (NYSE:AMH)?

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a jump of 36% from the previous quarter, pushing fund ownership to a high for the past year. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

HedgeFundSentimentChart

Of the funds tracked by Insider Monkey, Jason Karp’s Tourbillon Capital Partners has the most valuable position in American Homes 4 Rent (NYSE:AMH), worth close to $169.1 million, amounting to 3.5% of its total 13F portfolio. Sitting at the No. 2 spot is Jeffrey Furber of AEW Capital Management, with a $70.4 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Other peers that are bullish include Jim Simons’ Renaissance Technologies, Ken Griffin’s Citadel Investment Group, and Israel Englander’s Millennium Management.

As industry-wide interest jumped, specific money managers have jumped into American Homes 4 Rent (NYSE:AMH) headfirst. Citadel Investment Group established the biggest position in American Homes 4 Rent (NYSE:AMH). According to regulatory filings, the fund had $52.8 million invested in the company at the end of the quarter. Stuart J. Zimmer’s Zimmer Partners also made a $47.6 million investment in the stock during the quarter. The following funds were also among the new AMH investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Dmitry Balyasny’s Balyasny Asset Management, and Michael Swotes’ Castle Ridge Investment Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as American Homes 4 Rent (NYSE:AMH) but similarly valued. These stocks are Bemis Company, Inc. (NYSE:BMS), AECOM Technology Corp (NYSE:ACM), The Toro Company (NYSE:TTC), and AutoNation, Inc. (NYSE:AN). This group of stocks’ market valuations match AMH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BMS 16 165865 -2
ACM 26 338308 0
TTC 23 270776 5
AN 25 1167090 -3

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $486 million. That figure was $648 million in AMH’s case. AECOM Technology Corp (NYSE:ACM) is the most popular stock in this table. On the other hand Bemis Company, Inc. (NYSE:BMS) is the least popular one with only 16 bullish hedge fund positions. American Homes 4 Rent (NYSE:AMH) 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 a lot of hedge funds like. In this regard ACM might be a better candidate to consider a long position in.

Disclosure: None