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Arlington Asset Investment Corp (AI): Are Hedge Funds Right About This Stock?

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 Arlington Asset Investment Corp (NYSE:AI).

Arlington Asset Investment Corp (NYSE:AI) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 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 Senseonics Holdings, Inc. (NYSE:SENS), RedHill Biopharma Ltd – ADR (NASDAQ:RDHL), and Gold Resource Corporation (NYSE:GORO) to gather more data points. 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 below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

RENAISSANCE TECHNOLOGIES

Jim Simons of Renaissance Technologies

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent.  Let’s analyze the new hedge fund action encompassing Arlington Asset Investment Corp (NYSE:AI).

Hedge fund activity in Arlington Asset Investment Corp (NYSE:AI)

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 5 hedge funds with a bullish position in AI 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.

Is AI A Good Stock To Buy?

More specifically, Ellington was the largest shareholder of Arlington Asset Investment Corp (NYSE:AI), with a stake worth $7.1 million reported as of the end of September. Trailing Ellington was Renaissance Technologies, which amassed a stake valued at $4.5 million. HBK Investments, Miller Value Partners, and Winton Capital Management 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 Ellington allocated the biggest weight to Arlington Asset Investment Corp (NYSE:AI), around 1.29% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to AI.

Since Arlington Asset Investment Corp (NYSE:AI) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds that elected to cut their entire stakes in the third quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors dumped the largest investment of the 750 funds tracked by Insider Monkey, comprising about $0.9 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also cut its stock, about $0 million worth. These moves are important to note, as aggregate 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 Arlington Asset Investment Corp (NYSE:AI) but similarly valued. We will take a look at Senseonics Holdings, Inc. (NYSE:SENS), RedHill Biopharma Ltd – ADR (NASDAQ:RDHL), Gold Resource Corporation (NYSE:GORO), and Northeast Bancorp (NASDAQ:NBN). This group of stocks’ market values are closest to AI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SENS 9 6292 0
RDHL 2 24590 0
GORO 6 5835 -2
NBN 6 38130 0
Average 5.75 18712 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $20 million in AI’s case. Senseonics Holdings, Inc. (NYSE:SENS) is the most popular stock in this table. On the other hand RedHill Biopharma Ltd – ADR (NASDAQ:RDHL) is the least popular one with only 2 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 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 AI, though not to the same extent, as the stock returned 6.6% 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.

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