Here’s What Hedge Funds Think About ARMOUR Residential REIT, Inc. (ARR)

“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards ARMOUR Residential REIT, Inc. (NYSE:ARR) and see how it was affected.

ARMOUR Residential REIT, Inc. (NYSE:ARR) was in 5 hedge funds’ portfolios at the end of December. ARR has seen an increase in hedge fund sentiment recently. There were 3 hedge funds in our database with ARR positions at the end of the previous quarter. Our calculations also showed that arr isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.


Let’s take a glance at the fresh hedge fund action encompassing ARMOUR Residential REIT, Inc. (NYSE:ARR).

What does the smart money think about ARMOUR Residential REIT, Inc. (NYSE:ARR)?

At the end of the fourth quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ARR over the last 14 quarters. 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 ARR Positions

Among these funds, Citadel Investment Group held the most valuable stake in ARMOUR Residential REIT, Inc. (NYSE:ARR), which was worth $8 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $2.9 million worth of shares. Moreover, Point72 Asset Management, Millennium Management, and PEAK6 Capital Management were also bullish on ARMOUR Residential REIT, Inc. (NYSE:ARR), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, key hedge funds were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, created the biggest position in ARMOUR Residential REIT, Inc. (NYSE:ARR). Point72 Asset Management had $0.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.4 million investment in the stock during the quarter. The only other fund with a brand new ARR position is D. E. Shaw’s D E Shaw.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as ARMOUR Residential REIT, Inc. (NYSE:ARR) but similarly valued. We will take a look at Northern Oil & Gas, Inc. (NYSE:NOG), Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), Arbor Realty Trust, Inc. (NYSE:ABR), and Rent-A-Center Inc (NASDAQ:RCII). This group of stocks’ market caps match ARR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NOG 16 103063 -1
MNTA 20 195727 2
ABR 15 21089 5
RCII 19 249791 2
Average 17.5 142418 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $12 million in ARR’s case. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the most popular stock in this table. On the other hand Arbor Realty Trust, Inc. (NYSE:ABR) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks ARMOUR Residential REIT, Inc. (NYSE:ARR) is even less popular than ABR. Hedge funds dodged a bullet by taking a bearish stance towards ARR. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ARR wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); ARR investors were disappointed as the stock returned 0.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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