Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards ARMOUR Residential REIT, Inc. (NYSE:ARR).
ARMOUR Residential REIT, Inc. (NYSE:ARR) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of September. Our calculations also showed that ARR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 Ready Capital Corporation (NYSE:RC), Inozyme Pharma, Inc. (NASDAQ:INZY), and Cellcom Israel Ltd. (NYSE:CEL) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most traders, hedge funds are seen as slow, old investment vehicles of yesteryear. While there are over 8000 funds trading at the moment, Our researchers hone in on the aristocrats of this club, about 850 funds. It is estimated that this group of investors watch over the majority of all hedge funds’ total asset base, and by tracking their inimitable picks, Insider Monkey has figured out a number of investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s view the fresh hedge fund action surrounding ARMOUR Residential REIT, Inc. (NYSE:ARR).
Do Hedge Funds Think ARR Is A Good Stock To Buy Now?
At third quarter’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. On the other hand, there were a total of 14 hedge funds with a bullish position in ARR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in ARMOUR Residential REIT, Inc. (NYSE:ARR), which was worth $5.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $5.1 million worth of shares. Arrowstreet Capital, Citadel Investment Group, and PEAK6 Capital Management 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 Winton Capital Management allocated the biggest weight to ARMOUR Residential REIT, Inc. (NYSE:ARR), around 0.03% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to ARR.
Seeing as ARMOUR Residential REIT, Inc. (NYSE:ARR) has faced falling interest from the smart money, we can see that there lies a certain “tier” of money managers that decided to sell off their entire stakes last quarter. Intriguingly, Michael Gelband’s ExodusPoint Capital sold off the largest investment of all the hedgies followed by Insider Monkey, comprising close to $0.3 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also cut its stock, about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out 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 Ready Capital Corporation (NYSE:RC), Inozyme Pharma, Inc. (NASDAQ:INZY), Cellcom Israel Ltd. (NYSE:CEL), Knoll Inc (NYSE:KNL), Glatfelter Corporation (NYSE:GLT), Goldman Sachs BDC, Inc. (NYSE:GSBD), and Autolus Therapeutics plc (NASDAQ:AUTL). This group of 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|
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $22 million in ARR’s case. Inozyme Pharma, Inc. (NASDAQ:INZY) is the most popular stock in this table. On the other hand Cellcom Israel Ltd. (NYSE:CEL) is the least popular one with only 2 bullish hedge fund positions. ARMOUR Residential REIT, Inc. (NYSE:ARR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARR is 69.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on ARR as the stock returned 20.1% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.