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Hedge Funds Are Dumping Arlington Asset Investment Corp (AI)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Arlington Asset Investment Corp (NYSE:AI).

Is Arlington Asset Investment Corp (NYSE:AI) a marvelous stock to buy now? The smart money is becoming less hopeful. The number of bullish hedge fund positions retreated by 8 lately. Our calculations also showed that AI 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.

According to most investors, hedge funds are viewed as worthless, old financial tools of the past. While there are greater than 8000 funds with their doors open at present, Our researchers hone in on the leaders of this club, about 850 funds. It is estimated that this group of investors oversee most of the hedge fund industry’s total capital, and by tracking their top stock picks, Insider Monkey has spotted a number of investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Harding

David Harding of Winton Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the fresh hedge fund action surrounding Arlington Asset Investment Corp (NYSE:AI).

Hedge fund activity in Arlington Asset Investment Corp (NYSE:AI)

At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -62% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AI over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Arlington Asset Investment Corp (NYSE:AI), which was worth $1.7 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $0.7 million worth of shares. Ellington, Citadel Investment Group, and Algert Coldiron Investors 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 Ellington allocated the biggest weight to Arlington Asset Investment Corp (NYSE:AI), around 0.11% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to AI.

Seeing as Arlington Asset Investment Corp (NYSE:AI) has experienced falling interest from hedge fund managers, it’s easy to see that there is a sect of funds that elected to cut their entire stakes in the first quarter. Interestingly, Bill Miller’s Miller Value Partners said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $2.5 million in stock. David Costen Haley’s fund, HBK Investments, also sold off its stock, about $1.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 8 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Arlington Asset Investment Corp (NYSE:AI) but similarly valued. We will take a look at Montage Resources Corporation (NYSE:MR), Sorl Auto Parts, Inc. (NASDAQ:SORL), Bank7 Corp. (NASDAQ:BSVN), and QEP Resources Inc (NYSE:QEP). This group of stocks’ market values resemble AI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MR 11 8252 -8
SORL 2 584 -2
BSVN 2 2821 -2
QEP 15 12800 -8
Average 7.5 6114 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $3 million in AI’s case. QEP Resources Inc (NYSE:QEP) is the most popular stock in this table. On the other hand Sorl Auto Parts, Inc. (NASDAQ:SORL) is the least popular one with only 2 bullish hedge fund positions. Arlington Asset Investment Corp (NYSE:AI) 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 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately AI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AI investors were disappointed as the stock returned 9.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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