Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
In this article we’ll take a closer look at Independence Realty Trust Inc (NYSEMKT:IRT), which registered an increase in popularity during the third quarter. Among the funds we track, the number of funds long the stock surged by 15 to 22. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Stonegate Bank (NASDAQ:SGBK), Castlight Health Inc (NYSE:CSLT), and Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Now, let’s take a look at the recent action surrounding Independence Realty Trust Inc (NYSEMKT:IRT).
What does the smart money think about Independence Realty Trust Inc (NYSEMKT:IRT)?
At the end of September, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on Independence Realty Trust, which represents a boost of 214% from the previous quarter. By comparison, six hedge funds held shares or bullish call options in IRT heading into this year. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, James Dondero’s Highland Capital Management has the biggest position in Independence Realty Trust Inc (NYSEMKT:IRT), worth close to $37.2 million, corresponding to 1.1% of its total 13F portfolio. The second most bullish fund manager is Empyrean Capital Partners, led by Michael A. Price and Amos Meron, holding a $23.6 million position; the fund has 1.2% of its 13F portfolio invested in the stock. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Now, specific money managers have been driving this bullishness. Empyrean Capital Partners assembled the most valuable position in Independence Realty Trust Inc (NYSEMKT:IRT). Anand Parekh’s Alyeska Investment Group also made a $14 million investment in the stock during the quarter. The following funds were also among the new IRT investors: Paul Tudor Jones’s Tudor Investment Corp, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Glenn Russell Dubin’s Highbridge Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Independence Realty Trust Inc (NYSEMKT:IRT) but similarly valued. We will take a look at Stonegate Bank (NASDAQ:SGBK), Castlight Health Inc (NYSE:CSLT), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), and Landauer, Inc. (NYSE:LDR). This group of stocks’ market valuations are closest to IRT’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 12 funds with bullish positions and the average amount invested in these stocks was $41 million, which is lower than the $138 million figure in IRT’s case. Stonegate Bank (NASDAQ:SGBK) is the most popular stock in this table. On the other hand Landauer, Inc. (NYSE:LDR) is the least popular one with only eight funds holding shares. Compared to these stocks Independence Realty Trust Inc (NYSEMKT:IRT) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.