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Hedge Funds Have Never Been This Bullish On New York Mortgage Trust, Inc. (NYMT)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on New York Mortgage Trust, Inc. (NASDAQ:NYMT) in order to identify whether reputable and successful top money managers continue to believe in its potential.

New York Mortgage Trust, Inc. (NASDAQ:NYMT) was in 10 hedge funds’ portfolios at the end of the second quarter of 2019. NYMT has seen an increase in hedge fund interest recently. There were 6 hedge funds in our database with NYMT holdings at the end of the previous quarter. Our calculations also showed that NYMT isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Jeffrey Talpins Element Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action regarding New York Mortgage Trust, Inc. (NASDAQ:NYMT).

What have hedge funds been doing with New York Mortgage Trust, Inc. (NASDAQ:NYMT)?

At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in NYMT a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with NYMT Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the largest position in New York Mortgage Trust, Inc. (NASDAQ:NYMT). Renaissance Technologies has a $11.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which holds a $5.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism encompass Jeffrey Talpins’s Element Capital Management, David Harding’s Winton Capital Management and Israel Englander’s Millennium Management.

As one would reasonably expect, some big names were leading the bulls’ herd. Element Capital Management, managed by Jeffrey Talpins, established the biggest position in New York Mortgage Trust, Inc. (NASDAQ:NYMT). Element Capital Management had $1.3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.6 million investment in the stock during the quarter. The following funds were also among the new NYMT investors: D. E. Shaw’s D E Shaw, Cliff Asness’s AQR Capital Management, and Roger Ibbotson’s Zebra Capital Management.

Let’s go over hedge fund activity in other stocks similar to New York Mortgage Trust, Inc. (NASDAQ:NYMT). These stocks are Huron Consulting Group Inc. (NASDAQ:HURN), Scholastic Corporation (NASDAQ:SCHL), Axonics Modulation Technologies, Inc. (NASDAQ:AXNX), and KKR Real Estate Finance Trust Inc. (NYSE:KREF). This group of stocks’ market values are closest to NYMT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HURN 11 31189 0
SCHL 14 71291 4
AXNX 12 132890 2
KREF 9 50623 0
Average 11.5 71498 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $21 million in NYMT’s case. Scholastic Corporation (NASDAQ:SCHL) is the most popular stock in this table. On the other hand KKR Real Estate Finance Trust Inc. (NYSE:KREF) is the least popular one with only 9 bullish hedge fund positions. New York Mortgage Trust, Inc. (NASDAQ:NYMT) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NYMT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NYMT investors were disappointed as the stock returned 1.5% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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