Hedge Funds Are Piling Into American Homes 4 Rent (AMH)

In this article we will analyze whether American Homes 4 Rent (NYSE:AMH) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

American Homes 4 Rent (NYSE:AMH) was in 31 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. AMH shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. There were 27 hedge funds in our database with AMH positions at the end of the first quarter. Our calculations also showed that AMH isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 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.

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. Keeping this in mind we’re going to take a look at the key hedge fund action encompassing American Homes 4 Rent (NYSE:AMH).

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

Heading into the third quarter of 2021, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in AMH over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in American Homes 4 Rent (NYSE:AMH) was held by Echo Street Capital Management, which reported holding $140.7 million worth of stock at the end of June. It was followed by D E Shaw with a $135.9 million position. Other investors bullish on the company included Long Pond Capital, V3 Capital, and Waterfront Capital Partners. 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 11.95% of its 13F portfolio. V3 Capital is also relatively very bullish on the stock, setting aside 10.89 percent of its 13F equity portfolio to AMH.

Now, specific money managers were leading the bulls’ herd. Capital Growth Management, managed by Ken Heebner, established the largest position in American Homes 4 Rent (NYSE:AMH). Capital Growth Management had $25.6 million invested in the company at the end of the quarter. Matthew L Pinz’s Pinz Capital also made a $5.3 million investment in the stock during the quarter. The following funds were also among the new AMH investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Noam Gottesman’s GLG Partners, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

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 Allegion plc (NYSE:ALLE), Universal Health Services, Inc. (NYSE:UHS), Sociedad Química y Minera de Chile S.A. (NYSE:SQM), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), Annaly Capital Management, Inc. (NYSE:NLY), Texas Pacific Land Corporation (NYSE:TPL), and Cemex SAB de CV (NYSE:CX). This group of stocks’ market valuations are closest to AMH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALLE 37 1202742 10
UHS 41 724141 -2
SQM 19 156249 3
CHRW 31 299194 8
NLY 19 98211 4
TPL 21 2592325 4
CX 23 601778 -1
Average 27.3 810663 3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $811 million. That figure was $758 million in AMH’s case. Universal Health Services, Inc. (NYSE:UHS) is the most popular stock in this table. On the other hand Sociedad Química y Minera de Chile S.A. (NYSE:SQM) is the least popular one with only 19 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 66.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately AMH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AMH were disappointed as the stock returned 0.9% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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