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Hedge Funds Never Been This Bullish On Front Yard Residential Corporation (RESI)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Front Yard Residential Corporation (NYSE:RESI) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Front Yard Residential Corporation (NYSE:RESI) has seen an increase in hedge fund sentiment recently. Front Yard Residential Corporation (NYSE:RESI) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 13 hedge funds in our database with RESI holdings at the end of March. Our calculations also showed that RESI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

If you’d ask most investors, hedge funds are viewed as worthless, outdated financial vehicles of yesteryear. While there are over 8000 funds trading at the moment, We choose to focus on the elite of this group, around 850 funds. Most estimates calculate that this group of people watch over the majority of all hedge funds’ total capital, and by keeping track of their best picks, Insider Monkey has revealed many investment strategies that have historically defeated the market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Matthew Halbower Pentwater Capital

Matthew Halbower of Pentwater Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s go over the new hedge fund action encompassing Front Yard Residential Corporation (NYSE:RESI).

Hedge fund activity in Front Yard Residential Corporation (NYSE:RESI)

At Q2’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 92% from the first quarter of 2020. By comparison, 11 hedge funds held shares or bullish call options in RESI a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Pentwater Capital Management, managed by Matthew Halbower, holds the number one position in Front Yard Residential Corporation (NYSE:RESI). Pentwater Capital Management has a $30.2 million position in the stock, comprising 0.5% of its 13F portfolio. The second largest stake is held by Israel Englander of Millennium Management, with a $10.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Dmitry Balyasny’s Balyasny Asset Management, George Baxter’s Sabrepoint Capital and John Orrico’s Water Island Capital. In terms of the portfolio weights assigned to each position Lyon Street Capital allocated the biggest weight to Front Yard Residential Corporation (NYSE:RESI), around 2.98% of its 13F portfolio. Strycker View Capital is also relatively very bullish on the stock, earmarking 2.86 percent of its 13F equity portfolio to RESI.

Consequently, some big names were leading the bulls’ herd. Sabrepoint Capital, managed by George Baxter, assembled the most valuable position in Front Yard Residential Corporation (NYSE:RESI). Sabrepoint Capital had $5.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $4.3 million investment in the stock during the quarter. The other funds with brand new RESI positions are George McCabe’s Portolan Capital Management, C. Jonathan Gattman’s Cloverdale Capital Management, and Usman Waheed’s Strycker View Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Front Yard Residential Corporation (NYSE:RESI) but similarly valued. These stocks are Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE:LOMA), American Software, Inc. (NASDAQ:AMSWA), Flexion Therapeutics Inc (NASDAQ:FLXN), Adecoagro SA (NYSE:AGRO), NantHealth, Inc. (NASDAQ:NH), First Financial Corp (NASDAQ:THFF), and Select Energy Services, Inc. (NYSE:WTTR). This group of stocks’ market valuations are similar to RESI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOMA 11 42892 -1
AMSWA 12 42854 0
FLXN 15 162148 1
AGRO 13 133307 -1
NH 3 3177 -1
THFF 8 26500 -2
WTTR 13 24305 -3
Average 10.7 62169 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.7 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $88 million in RESI’s case. Flexion Therapeutics Inc (NASDAQ:FLXN) is the most popular stock in this table. On the other hand NantHealth, Inc. (NASDAQ:NH) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Front Yard Residential Corporation (NYSE:RESI) is more popular among hedge funds. Our overall hedge fund sentiment score for RESI is 90. 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. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately RESI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RESI were disappointed as the stock returned -0.6% since the end of 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.