The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards American Homes 4 Rent (NYSE:AMH), and what that likely means for the prospects of the company and its stock.
American Homes 4 Rent (NYSE:AMH) has seen a decrease in hedge fund sentiment of late. Our calculations also showed that AMH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the key hedge fund action surrounding American Homes 4 Rent (NYSE:AMH).
Hedge fund activity in American Homes 4 Rent (NYSE:AMH)
At Q3's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in AMH 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.
More specifically, Zimmer Partners was the largest shareholder of American Homes 4 Rent (NYSE:AMH), with a stake worth $133.2 million reported as of the end of September. Trailing Zimmer Partners was Echo Street Capital Management, which amassed a stake valued at $92.3 million. Citadel Investment Group, Renaissance Technologies, and Millennium 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 Echo Street Capital Management allocated the biggest weight to American Homes 4 Rent (NYSE:AMH), around 1.57% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, dishing out 1.45 percent of its 13F equity portfolio to AMH.
Seeing as American Homes 4 Rent (NYSE:AMH) has witnessed falling interest from the smart money, it's safe to say that there was a specific group of hedge funds that elected to cut their full holdings in the third quarter. At the top of the heap, Jeffrey Furber's AEW Capital Management sold off the biggest position of the "upper crust" of funds followed by Insider Monkey, valued at about $56.7 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also said goodbye to its stock, about $25.1 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as American Homes 4 Rent (NYSE:AMH) but similarly valued. These stocks are Apartment Investment and Management Co. (NYSE:AIV), Post Holdings Inc (NYSE:POST), DXC Technology Company (NYSE:DXC), and Assurant, Inc. (NYSE:AIZ). This group of stocks' market values resemble AMH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AIV,24,659456,0 POST,28,1466400,2 DXC,34,1144765,-7 AIZ,27,905471,-2 Average,28.25,1044023,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $1044 million. That figure was $432 million in AMH's case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand Apartment Investment and Management Co. (NYSE:AIV) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks American Homes 4 Rent (NYSE:AMH) is even less popular than AIV. Hedge funds dodged a bullet by taking a bearish stance towards AMH. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AMH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AMH investors were disappointed as the stock returned 3.2% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.