At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Invesco Mortgage Capital Inc (NYSE:IVR).
Invesco Mortgage Capital Inc (NYSE:IVR) was in 9 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 19. IVR has seen a decrease in hedge fund interest recently. There were 12 hedge funds in our database with IVR holdings at the end of June. Our calculations also showed that IVR isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s review the fresh hedge fund action regarding Invesco Mortgage Capital Inc (NYSE:IVR).
Do Hedge Funds Think IVR Is A Good Stock To Buy Now?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IVR over the last 21 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Invesco Mortgage Capital Inc (NYSE:IVR) was held by Citadel Investment Group, which reported holding $7 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $5 million position. Other investors bullish on the company included Citadel Investment Group, ExodusPoint Capital, and Tudor Investment Corp. In terms of the portfolio weights assigned to each position Caxton Associates LP allocated the biggest weight to Invesco Mortgage Capital Inc (NYSE:IVR), around 0.03% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to IVR.
Because Invesco Mortgage Capital Inc (NYSE:IVR) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there exists a select few hedge funds that slashed their entire stakes in the third quarter. Interestingly, David Harding’s Winton Capital Management dumped the biggest stake of all the hedgies tracked by Insider Monkey, valued at an estimated $2.9 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund dropped about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds in the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Invesco Mortgage Capital Inc (NYSE:IVR) but similarly valued. We will take a look at Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM), GAN Limited (NASDAQ:GAN), DMC Global Inc. (NASDAQ:BOOM), Northfield Bancorp, Inc. (Staten Island, NY) (NASDAQ:NFBK), US Concrete Inc (NASDAQ:USCR), Homology Medicines, Inc. (NASDAQ:FIXX), and CAI International Inc (NYSE:CAI). All of these stocks’ market caps resemble IVR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.6 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $14 million in IVR’s case. Homology Medicines, Inc. (NASDAQ:FIXX) is the most popular stock in this table. On the other hand DMC Global Inc. (NASDAQ:BOOM) is the least popular one with only 6 bullish hedge fund positions. Invesco Mortgage Capital Inc (NYSE:IVR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IVR is 46.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on IVR as the stock returned 28.5% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Invesco Mortgage Capital Inc. (NYSE:IVR)
Follow Invesco Mortgage Capital Inc. (NYSE:IVR)
Disclosure: None. This article was originally published at Insider Monkey.