Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about New Residential Investment Corp (NYSE:NRZ).
New Residential Investment Corp (NYSE:NRZ) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Our calculations also showed that NRZ isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Let’s take a look at the new hedge fund action encompassing New Residential Investment Corp (NYSE:NRZ).
What have hedge funds been doing with New Residential Investment Corp (NYSE:NRZ)?
At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in NRZ a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in New Residential Investment Corp (NYSE:NRZ) was held by Balyasny Asset Management, which reported holding $80.9 million worth of stock at the end of March. It was followed by Capital Growth Management with a $35.4 million position. Other investors bullish on the company included Whitebox Advisors, Omega Advisors, and Millennium Management.
Judging by the fact that New Residential Investment Corp (NYSE:NRZ) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few hedgies that slashed their positions entirely by the end of the second quarter. Intriguingly, Renaissance Technologies cut the largest position of the 750 funds watched by Insider Monkey, valued at about $19.4 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $16.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to New Residential Investment Corp (NYSE:NRZ). These stocks are Brookfield Renewable Partners L.P. (NYSE:BEP), Newell Brands Inc. (NASDAQ:NWL), Nektar Therapeutics (NASDAQ:NKTR), and Jones Lang LaSalle Inc (NYSE:JLL). All of these stocks’ market caps resemble NRZ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BEP | 4 | 7705 | 1 |
| NWL | 29 | 1131918 | -1 |
| NKTR | 19 | 228273 | 2 |
| JLL | 23 | 984740 | 0 |
| Average | 18.75 | 588159 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $588 million. That figure was $156 million in NRZ’s case. Newell Brands Inc. (NASDAQ:NWL) is the most popular stock in this table. On the other hand Brookfield Renewable Partners L.P. (NYSE:BEP) is the least popular one with only 4 bullish hedge fund positions. New Residential Investment Corp (NYSE:NRZ) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on NRZ, though not to the same extent, as the stock returned 1.9% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
