Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about ARMOUR Residential REIT, Inc. (NYSE:ARR) in this article.
Hedge fund interest in ARMOUR Residential REIT, Inc. (NYSE:ARR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ARR to other stocks including NIC Inc. (NASDAQ:EGOV), Kenon Holdings Ltd. (NYSE:KEN), and Brigham Minerals, Inc. (NYSE:MNRL) to get a better sense of its popularity. Our calculations also showed that ARR 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a 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 view the recent hedge fund action surrounding ARMOUR Residential REIT, Inc. (NYSE:ARR).
How are hedge funds trading ARMOUR Residential REIT, Inc. (NYSE:ARR)?
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in ARR a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ARMOUR Residential REIT, Inc. (NYSE:ARR) was held by Balyasny Asset Management, which reported holding $36.4 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $13.5 million position. Other investors bullish on the company included Millennium Management, Blue Mountain Capital, and Winton Capital Management.
Since ARMOUR Residential REIT, Inc. (NYSE:ARR) has witnessed a decline in interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of funds that slashed their positions entirely by the end of the second quarter. It's worth mentioning that Renaissance Technologies sold off the biggest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $10.8 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund sold off about $6.7 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to ARMOUR Residential REIT, Inc. (NYSE:ARR). These stocks are NIC Inc. (NASDAQ:EGOV), Kenon Holdings Ltd. (NYSE:KEN), Brigham Minerals, Inc. (NYSE:MNRL), and Loral Space & Communications Ltd. (NASDAQ:LORL). This group of stocks' market caps are closest to ARR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EGOV,17,90209,-1 KEN,1,1980,-1 MNRL,15,79480,15 LORL,16,513824,-3 Average,12.25,171373,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $171 million. That figure was $67 million in ARR's case. NIC Inc. (NASDAQ:EGOV) is the most popular stock in this table. On the other hand Kenon Holdings Ltd. (NYSE:KEN) is the least popular one with only 1 bullish hedge fund positions. ARMOUR Residential REIT, Inc. (NYSE:ARR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately ARR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARR investors were disappointed as the stock returned -7.5% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.