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Did Hedge Funds Drop The Ball On Independence Realty Trust Inc (IRT) ?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 4 percentage points during the first 9 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Independence Realty Trust Inc (NYSE:IRT).

Independence Realty Trust Inc (NYSE:IRT) was in 8 hedge funds’ portfolios at the end of June. IRT investors should be aware of a decrease in activity from the world’s largest hedge funds of late. There were 11 hedge funds in our database with IRT holdings at the end of the previous quarter. Our calculations also showed that IRT isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

IRT_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the fresh hedge fund action surrounding Independence Realty Trust Inc (NYSE:IRT).

How have hedgies been trading Independence Realty Trust Inc (NYSE:IRT)?

Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in IRT a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

James Dondero Highland Capital Management

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in Independence Realty Trust Inc (NYSE:IRT). Renaissance Technologies has a $55.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Highland Capital Management, managed by James Dondero, which holds a $5.3 million position; 0.3% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish consist of Ken Griffin’s Citadel Investment Group, Frederick DiSanto’s Ancora Advisors and David Harding’s Winton Capital Management.

Because Independence Realty Trust Inc (NYSE:IRT) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedgies that decided to sell off their full holdings heading into Q3. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest stake of all the hedgies tracked by Insider Monkey, comprising close to $1.3 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dropped about $0.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Independence Realty Trust Inc (NYSE:IRT). These stocks are Piper Jaffray Companies (NYSE:PJC), Par Pacific Holdings, Inc. (NYSE:PARR), Synaptics Incorporated (NASDAQ:SYNA), and Methode Electronics Inc. (NYSE:MEI). All of these stocks’ market caps are similar to IRT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PJC 9 50094 1
PARR 14 121798 -2
SYNA 13 179495 -8
MEI 8 87043 -2
Average 11 109608 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $66 million in IRT’s case. Par Pacific Holdings, Inc. (NYSE:PARR) is the most popular stock in this table. On the other hand Methode Electronics Inc. (NYSE:MEI) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Independence Realty Trust Inc (NYSE:IRT) is even less popular than MEI. Hedge funds clearly dropped the ball on IRT as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on IRT as the stock returned 25.2% during the third quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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