Did Hedge Funds Make The Right Call On New Residential Investment Corp (NRZ) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of New Residential Investment Corp (NYSE:NRZ) based on that data and determine whether they were really smart about the stock.

Hedge fund interest in New Residential Investment Corp (NYSE:NRZ) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Vishay Intertechnology, Inc. (NYSE:VSH), Simmons First National Corporation (NASDAQ:SFNC), and Diodes Incorporated (NASDAQ:DIOD) to gather more data points. Our calculations also showed that NRZ isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a lot of indicators stock traders use to assess their holdings. A pair of the best indicators are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top fund managers can outpace the S&P 500 by a superb amount (see the details here).

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to analyze the new hedge fund action encompassing New Residential Investment Corp (NYSE:NRZ).

How have hedgies been trading New Residential Investment Corp (NYSE:NRZ)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in NRZ over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in New Residential Investment Corp (NYSE:NRZ) was held by Point72 Asset Management, which reported holding $4.8 million worth of stock at the end of September. It was followed by Millennium Management with a $4.1 million position. Other investors bullish on the company included Castle Hook Partners, Arrowstreet Capital, and Winton Capital Management. In terms of the portfolio weights assigned to each position Swift Run Capital Management allocated the biggest weight to New Residential Investment Corp (NYSE:NRZ), around 0.58% of its 13F portfolio. Castle Hook Partners is also relatively very bullish on the stock, setting aside 0.36 percent of its 13F equity portfolio to NRZ.

Since New Residential Investment Corp (NYSE:NRZ) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of hedge funds who sold off their entire stakes in the first quarter. It’s worth mentioning that Renaissance Technologies dumped the largest stake of all the hedgies monitored by Insider Monkey, comprising about $33.2 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund cut about $29.8 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as New Residential Investment Corp (NYSE:NRZ) but similarly valued. These stocks are Vishay Intertechnology, Inc. (NYSE:VSH), Simmons First National Corporation (NASDAQ:SFNC), Diodes Incorporated (NASDAQ:DIOD), and DouYu International Holdings Limited (NASDAQ:DOYU). This group of stocks’ market values are closest to NRZ’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VSH 23 266555 3
SFNC 4 2712 -2
DIOD 13 49641 -5
DOYU 15 30200 9
Average 13.75 87277 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $28 million in NRZ’s case. Vishay Intertechnology, Inc. (NYSE:VSH) is the most popular stock in this table. On the other hand Simmons First National Corporation (NASDAQ:SFNC) is the least popular one with only 4 bullish hedge fund positions. New Residential Investment Corp (NYSE:NRZ) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on NRZ as the stock returned 49.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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