Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is New Residential Investment Corp (NYSE:NRZ) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is New Residential Investment Corp (NYSE:NRZ) a good investment today? Hedge funds are in an optimistic mood. The number of bullish hedge fund positions advanced by 3 in recent months. Our calculations also showed that NRZ isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Heebner of Capital Growth Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the key hedge fund action encompassing New Residential Investment Corp (NYSE:NRZ).
How have hedgies been trading New Residential Investment Corp (NYSE:NRZ)?
Heading into the first quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the third quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in NRZ a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of New Residential Investment Corp (NYSE:NRZ), with a stake worth $33.2 million reported as of the end of September. Trailing Renaissance Technologies was Capital Growth Management, which amassed a stake valued at $29.8 million. Balyasny Asset Management, D E Shaw, and Islet Management 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 Capital Growth Management allocated the biggest weight to New Residential Investment Corp (NYSE:NRZ), around 2.41% of its 13F portfolio. Swift Run Capital Management is also relatively very bullish on the stock, dishing out 2.02 percent of its 13F equity portfolio to NRZ.
Consequently, specific money managers were breaking ground themselves. Renaissance Technologies, initiated the most outsized position in New Residential Investment Corp (NYSE:NRZ). Renaissance Technologies had $33.2 million invested in the company at the end of the quarter. Joseph Samuels’s Islet Management also made a $6 million investment in the stock during the quarter. The other funds with new positions in the stock are Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Mike Vranos’s Ellington.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as New Residential Investment Corp (NYSE:NRZ) but similarly valued. We will take a look at Leggett & Platt, Inc. (NYSE:LEG), Grupo Aeroportuario del Pacifico (NYSE:PAC), CDK Global Inc (NASDAQ:CDK), and Ascendis Pharma A/S (NASDAQ:ASND). All of these stocks’ market caps are similar to NRZ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEG | 27 | 101609 | 15 |
| PAC | 7 | 144956 | 4 |
| CDK | 25 | 356570 | -4 |
| ASND | 38 | 2756276 | 4 |
| Average | 24.25 | 839853 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $840 million. That figure was $130 million in NRZ’s case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico (NYSE:PAC) is the least popular one with only 7 bullish hedge fund positions. New Residential Investment Corp (NYSE:NRZ) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately NRZ wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NRZ investors were disappointed as the stock returned -34.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
