Is Arlington Asset Investment Corp (NYSE:AI) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Arlington Asset Investment Corp (NYSE:AI) shareholders have witnessed an increase in hedge fund interest of late. Our calculations also showed that AI 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to take a look at the fresh hedge fund action surrounding Arlington Asset Investment Corp (NYSE:AI).
How have hedgies been trading Arlington Asset Investment Corp (NYSE:AI)?
At the end of the second quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AI over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Arlington Asset Investment Corp (NYSE:AI) was held by Miller Value Partners, which reported holding $4.1 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $3.9 million position. Other investors bullish on the company included Ellington, Two Sigma Advisors, and Citadel Investment Group.
Consequently, key hedge funds have jumped into Arlington Asset Investment Corp (NYSE:AI) headfirst. Miller Value Partners, managed by Bill Miller, initiated the biggest position in Arlington Asset Investment Corp (NYSE:AI). Miller Value Partners had $4.1 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $0.1 million position during the quarter. The only other fund with a brand new AI position is Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now take a look at hedge fund activity in other stocks similar to Arlington Asset Investment Corp (NYSE:AI). These stocks are Orrstown Financial Services, Inc. (NASDAQ:ORRF), Evelo Biosciences, Inc. (NASDAQ:EVLO), LCNB Corp. (NASDAQ:LCNB), and Northrim BanCorp, Inc. (NASDAQ:NRIM). This group of stocks' market caps match AI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ORRF,3,10783,-1 EVLO,2,8054,0 LCNB,1,3741,-1 NRIM,8,24576,1 Average,3.5,11789,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $14 million in AI's case. Northrim BanCorp, Inc. (NASDAQ:NRIM) is the most popular stock in this table. On the other hand LCNB Corp. (NASDAQ:LCNB) is the least popular one with only 1 bullish hedge fund positions. Arlington Asset Investment Corp (NYSE:AI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 AI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AI were disappointed as the stock returned -14.1% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.