Was The Smart Money Right About ARMOUR Residential REIT, Inc. (ARR)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we are going to take a look at smart money sentiment towards ARMOUR Residential REIT, Inc. (NYSE:ARR).

ARMOUR Residential REIT, Inc. (NYSE:ARR) was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2019. ARR has seen a decrease in hedge fund interest in recent months. There were 14 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 (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the key hedge fund action encompassing ARMOUR Residential REIT, Inc. (NYSE:ARR).

Hedge fund activity in ARMOUR Residential REIT, Inc. (NYSE:ARR)

Heading into the first quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the third quarter of 2019. By comparison, 5 hedge funds held shares or bullish call options in ARR a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ARR A Good Stock To Buy?

The largest stake in ARMOUR Residential REIT, Inc. (NYSE:ARR) was held by Citadel Investment Group, which reported holding $9.7 million worth of stock at the end of September. It was followed by Winton Capital Management with a $8.3 million position. Other investors bullish on the company included Balyasny Asset Management, Renaissance Technologies, and HBK Investments. In terms of the portfolio weights assigned to each position Almitas Capital allocated the biggest weight to ARMOUR Residential REIT, Inc. (NYSE:ARR), around 0.84% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.12 percent of its 13F equity portfolio to ARR.

Because ARMOUR Residential REIT, Inc. (NYSE:ARR) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few hedge funds that elected to cut their full holdings in the third quarter. Interestingly, Mike Vranos’s Ellington cut the biggest position of the 750 funds tracked by Insider Monkey, totaling close to $15.3 million in stock. Andrew Feldstein and Stephen Siderow’s fund, Blue Mountain Capital, also said goodbye to its stock, about $2.7 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ARMOUR Residential REIT, Inc. (NYSE:ARR) but similarly valued. These stocks are Oasis Petroleum Inc. (NYSE:OAS), NextGen Healthcare, Inc. (NASDAQ:NXGN), Endo International plc (NASDAQ:ENDP), and Renewable Energy Group Inc (NASDAQ:REGI). All of these stocks’ market caps are closest to ARR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OAS 17 97611 2
NXGN 16 25475 3
ENDP 17 294280 -2
REGI 21 222864 5
Average 17.75 160058 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $34 million in ARR’s case. Renewable Energy Group Inc (NASDAQ:REGI) is the most popular stock in this table. On the other hand NextGen Healthcare, Inc. (NASDAQ:NXGN) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks ARMOUR Residential REIT, Inc. (NYSE:ARR) is even less popular than NXGN. Hedge funds dodged a bullet by taking a bearish stance towards ARR. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately ARR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ARR investors were disappointed as the stock returned -53.5% during the same time period 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 so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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