Did The Smart Money Play American Homes 4 Rent (AMH) Correctly?

Technology stocks had a lousy start to 2022. QQQ lost 9% of its value in January. Pandemic winners are getting crushed while energy stocks are surging. Roblox lost 36%, Moderna lost 33%, and Carvana and Shopify lost 30% of their values in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards American Homes 4 Rent (NYSE:AMH) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Is American Homes 4 Rent (NYSE:AMH) a healthy stock for your portfolio? Investors who are in the know were getting more optimistic. The number of bullish hedge fund bets improved by 2 lately. American Homes 4 Rent (NYSE:AMH) was in 33 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic was previously 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AMH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding American Homes 4 Rent (NYSE:AMH).

Gavin Saitowitz of Prelude Capital

Gavin Saitowitz of Prelude Capital

Do Hedge Funds Think AMH Is A Good Stock To Buy Now?

At third quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AMH over the last 25 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Long Pond Capital held the most valuable stake in American Homes 4 Rent (NYSE:AMH), which was worth $146.5 million at the end of the third quarter. On the second spot was Echo Street Capital Management which amassed $143.5 million worth of shares. Millennium Management, D E Shaw, and V3 Capital 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 59 North Capital allocated the biggest weight to American Homes 4 Rent (NYSE:AMH), around 9.79% of its 13F portfolio. V3 Capital is also relatively very bullish on the stock, setting aside 8.31 percent of its 13F equity portfolio to AMH.

Now, specific money managers have jumped into American Homes 4 Rent (NYSE:AMH) headfirst. Tudor Investment Corp, managed by Paul Tudor Jones, created the most valuable position in American Homes 4 Rent (NYSE:AMH). Tudor Investment Corp had $5.8 million invested in the company at the end of the quarter. Joseph Samuels’s Islet Management also initiated a $3.8 million position during the quarter. The following funds were also among the new AMH investors: Alec Litowitz and Ross Laser’s Magnetar Capital, Nick Thakore’s Diametric Capital, and Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as American Homes 4 Rent (NYSE:AMH) but similarly valued. These stocks are Hasbro, Inc. (NASDAQ:HAS), Tencent Music Entertainment Group (NYSE:TME), Mohawk Industries, Inc. (NYSE:MHK), GFL Environmental Inc. (NYSE:GFL), Equitable Holdings, Inc. (NYSE:EQH), DaVita Inc (NYSE:DVA), and Annaly Capital Management, Inc. (NYSE:NLY). This group of stocks’ market values resemble AMH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HAS 25 185494 -2
TME 24 256088 -11
MHK 38 1263338 -6
GFL 19 758568 -4
EQH 46 1704423 1
DVA 39 4811137 0
NLY 15 34941 -4
Average 29.4 1287713 -3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $1288 million. That figure was $786 million in AMH’s case. Equitable Holdings, Inc. (NYSE:EQH) is the most popular stock in this table. On the other hand Annaly Capital Management, Inc. (NYSE:NLY) is the least popular one with only 15 bullish hedge fund positions. American Homes 4 Rent (NYSE:AMH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AMH is 66. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on AMH as the stock returned 2.9% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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