We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Anworth Mortgage Asset Corporation (NYSE:ANH).
Anworth Mortgage Asset Corporation (NYSE:ANH) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as XPEL Inc. (NASDAQ:XPEL), Computer Programs & Systems, Inc. (NASDAQ:CPSI), and Select Interior Concepts, Inc. (NASDAQ:SIC) to gather more data points. Our calculations also showed that ANH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the fresh hedge fund action surrounding Anworth Mortgage Asset Corporation (NYSE:ANH).
How are hedge funds trading Anworth Mortgage Asset Corporation (NYSE:ANH)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in ANH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the number one position in Anworth Mortgage Asset Corporation (NYSE:ANH). Renaissance Technologies has a $21.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is David Harding of Winton Capital Management, with a $2.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish contain Andrew Weiss’s Weiss Asset Management, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Weiss Asset Management allocated the biggest weight to Anworth Mortgage Asset Corporation (NYSE:ANH), around 0.14% of its 13F portfolio. Almitas Capital is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to ANH.
Judging by the fact that Anworth Mortgage Asset Corporation (NYSE:ANH) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of money managers who sold off their full holdings last quarter. It’s worth mentioning that Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital dumped the largest investment of the 750 funds followed by Insider Monkey, comprising close to $0.8 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also sold off its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Anworth Mortgage Asset Corporation (NYSE:ANH) but similarly valued. These stocks are XPEL Inc. (NASDAQ:XPEL), Computer Programs & Systems, Inc. (NASDAQ:CPSI), Select Interior Concepts, Inc. (NASDAQ:SIC), and Willis Lease Finance Corporation (NASDAQ:WLFC). All of these stocks’ market caps are closest to ANH’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
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 $31 million. That figure was $30 million in ANH’s case. Select Interior Concepts, Inc. (NASDAQ:SIC) is the most popular stock in this table. On the other hand XPEL Inc. (NASDAQ:XPEL) is the least popular one with only 2 bullish hedge fund positions. Anworth Mortgage Asset Corporation (NYSE:ANH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ANH, though not to the same extent, as the stock returned 6.7% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.