Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is MTGE Investment Corp (NASDAQ:MTGE) the right investment to pursue these days? Investors who are in the know are unmistakably taking a bearish view. The number of long hedge fund positions were cut by 4 in recent months. MTGE was in 8 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with MTGE positions at the end of the previous quarter. 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 Lindsay Corporation (NYSE:LNN), Triangle Capital Corporation (NYSE:TCAP), and U.S. Physical Therapy, Inc. (NYSE:USPH) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
Hedge fund activity in MTGE Investment Corp (NASDAQ:MTGE)
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 33% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in MTGE heading into this year. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Andy Redleaf’s Whitebox Advisors has the largest position in MTGE Investment Corp (NASDAQ:MTGE), worth close to $36.8 million, amounting to 1.5% of its total 13F portfolio. Coming in second is Clough Capital Partners, led by Charles Clough, holding a $20.4 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Ken Griffin’s Citadel Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that Whitebox Advisors is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that dumped their entire stakes in the stock during the third quarter. It’s worth mentioning that Millennium Management, one of the 10 largest hedge funds in the world, dumped the biggest position of all the investors watched by Insider Monkey, valued at an estimated $21.5 million in stock, and Brian Taylor’s Pine River Capital Management was right behind this move, as the fund cut about $6.9 million worth of shares.
Let’s now take a look at hedge fund activity in other stocks similar to MTGE Investment Corp (NASDAQ:MTGE). We will take a look at Lindsay Corporation (NYSE:LNN), Triangle Capital Corporation (NYSE:TCAP), U.S. Physical Therapy, Inc. (NYSE:USPH), and Griffon Corporation (NYSE:GFF). This group of stocks’ market valuations match MTGE’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $77 million in MTGE’s case. U.S. Physical Therapy, Inc. (NYSE:USPH) is the most popular stock in this table. On the other hand Triangle Capital Corporation (NYSE:TCAP) is the least popular one with only 6 bullish hedge fund positions. MTGE Investment Corp (NASDAQ:MTGE) 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. In this regard USPH might be a better candidate to consider taking a long position in.