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Did Hedge Funds Drop The Ball On NextPoint Residential Trust Inc (NXRT) ?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at NextPoint Residential Trust Inc (NYSE:NXRT) from the perspective of those elite funds.

Hedge fund interest in NextPoint Residential Trust Inc (NYSE:NXRT) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NXRT to other stocks including H&E Equipment Services, Inc. (NASDAQ:HEES), Middlesex Water Company (NASDAQ:MSEX), and Mercer International Inc. (NASDAQ:MERC) to get a better sense of its popularity. Our calculations also showed that NXRT 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 21st century investor’s toolkit there are tons of signals investors employ to size up publicly traded companies. A couple of the most useful signals are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the top hedge fund managers can beat the S&P 500 by a very impressive margin (see the details here).

James Dondero Highland Capital Management

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 look at the recent hedge fund action encompassing NextPoint Residential Trust Inc (NYSE:NXRT).

How are hedge funds trading NextPoint Residential Trust Inc (NYSE:NXRT)?

At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NXRT over the last 16 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

NXRT_oct2019

The largest stake in NextPoint Residential Trust Inc (NYSE:NXRT) was held by Highland Capital Management, which reported holding $111.9 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $50.9 million position. Other investors bullish on the company included Millennium Management, GLG Partners, and Citadel Investment Group.

Because NextPoint Residential Trust Inc (NYSE:NXRT) has experienced a decline in interest from hedge fund managers, we can see that there exists a select few hedge funds who were dropping their positions entirely last quarter. At the top of the heap, Bruce Kovner’s Caxton Associates LP dropped the biggest position of the 750 funds tracked by Insider Monkey, totaling about $0.4 million in stock. Roger Ibbotson’s fund, Zebra Capital Management, also said goodbye to its stock, about $0.2 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 review hedge fund activity in other stocks – not necessarily in the same industry as NextPoint Residential Trust Inc (NYSE:NXRT) but similarly valued. We will take a look at H&E Equipment Services, Inc. (NASDAQ:HEES), Middlesex Water Company (NASDAQ:MSEX), Mercer International Inc. (NASDAQ:MERC), and Kraton Corporation (NYSE:KRA). This group of stocks’ market valuations resemble NXRT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HEES 12 37700 -1
MSEX 9 49252 0
MERC 16 159892 2
KRA 17 83773 -2
Average 13.5 82654 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $182 million in NXRT’s case. Kraton Corporation (NYSE:KRA) is the most popular stock in this table. On the other hand Middlesex Water Company (NASDAQ:MSEX) is the least popular one with only 9 bullish hedge fund positions. NextPoint Residential Trust Inc (NYSE:NXRT) is not the least popular stock in this group but hedge fund interest is still below average. 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 NXRT as the stock returned 13.6% during the same time frame and outperformed the market by an even larger margin.

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

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