At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards NextPoint Residential Trust Inc (NYSE:NXRT) at the end of the first quarter and determine whether the smart money was really smart about this stock.
NextPoint Residential Trust Inc (NYSE:NXRT) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Our calculations also showed that NXRT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 shareholders, hedge funds are viewed as slow, old investment tools of years past. While there are more than 8000 funds in operation at present, Our experts look at the elite of this club, approximately 850 funds. These money managers handle the majority of the hedge fund industry’s total capital, and by observing their top equity investments, Insider Monkey has come up with many investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the recent hedge fund action regarding NextPoint Residential Trust Inc (NYSE:NXRT).
How have hedgies been trading NextPoint Residential Trust Inc (NYSE:NXRT)?
At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NXRT over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Highland Capital Management was the largest shareholder of NextPoint Residential Trust Inc (NYSE:NXRT), with a stake worth $30.7 million reported as of the end of September. Trailing Highland Capital Management was Renaissance Technologies, which amassed a stake valued at $30.2 million. Millennium Management, Lyon Street Capital, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Highland Capital Management allocated the biggest weight to NextPoint Residential Trust Inc (NYSE:NXRT), around 5.81% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, setting aside 5.39 percent of its 13F equity portfolio to NXRT.
Judging by the fact that NextPoint Residential Trust Inc (NYSE:NXRT) has witnessed falling interest from hedge fund managers, it’s easy to see that there was a specific group of hedge funds that elected to cut their entire stakes in the first quarter. Interestingly, Noam Gottesman’s GLG Partners sold off the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising about $2.5 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund cut about $1.9 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 5 funds in the first quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NextPoint Residential Trust Inc (NYSE:NXRT) but similarly valued. These stocks are ChipMOS Technologies Inc (NASDAQ:IMOS), Opus Bank (NASDAQ:OPB), Stewart Information Services Corp (NYSE:STC), and Johnson Outdoors Inc. (NASDAQ:JOUT). This group of stocks’ market valuations are closest to NXRT’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $79 million in NXRT’s case. Stewart Information Services Corp (NYSE:STC) is the most popular stock in this table. On the other hand ChipMOS Technologies Inc (NASDAQ:IMOS) is the least popular one with only 2 bullish hedge fund positions. NextPoint Residential Trust Inc (NYSE:NXRT) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on NXRT as the stock returned 41.5% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.