How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Arbor Realty Trust, Inc. (NYSE:ABR).
Arbor Realty Trust, Inc. (NYSE:ABR) has experienced an increase in activity from the world's largest hedge funds in recent months. ABR was in 14 hedge funds' portfolios at the end of June. There were 9 hedge funds in our database with ABR positions at the end of the previous quarter. Our calculations also showed that ABR isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the latest hedge fund action regarding Arbor Realty Trust, Inc. (NYSE:ABR).
How have hedgies been trading Arbor Realty Trust, Inc. (NYSE:ABR)?
At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 56% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in ABR a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Omega Advisors held the most valuable stake in Arbor Realty Trust, Inc. (NYSE:ABR), which was worth $29.8 million at the end of the second quarter. On the second spot was Millennium Management which amassed $22.8 million worth of shares. Moreover, Marshall Wace LLP, Citadel Investment Group, and Balyasny Asset Management were also bullish on Arbor Realty Trust, Inc. (NYSE:ABR), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Springbok Capital, managed by Gavin Saitowitz and Cisco J. del Valle, established the most valuable position in Arbor Realty Trust, Inc. (NYSE:ABR). Springbok Capital had $0.5 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners also initiated a $0.5 million position during the quarter. The other funds with brand new ABR positions are Paul Tudor Jones's Tudor Investment Corp, Bruce Kovner's Caxton Associates LP, and Thomas Bailard's Bailard Inc.
Let's also examine hedge fund activity in other stocks similar to Arbor Realty Trust, Inc. (NYSE:ABR). These stocks are Compass Diversified Holdings LLC (NYSE:CODI), Radware Ltd. (NASDAQ:RDWR), Alamo Group, Inc. (NYSE:ALG), and Knoll Inc (NYSE:KNL). This group of stocks' market caps are similar to ABR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CODI,5,7883,1 RDWR,16,316267,-1 ALG,7,185807,-3 KNL,16,66709,-3 Average,11,144167,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $101 million in ABR's case. Radware Ltd. (NASDAQ:RDWR) is the most popular stock in this table. On the other hand Compass Diversified Holdings LLC (NYSE:CODI) is the least popular one with only 5 bullish hedge fund positions. Arbor Realty Trust, Inc. (NYSE:ABR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ABR as the stock returned 10.7% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.