While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding American Homes 4 Rent (NYSE:AMH).
American Homes 4 Rent (NYSE:AMH) investors should be aware of an increase in activity from the world's largest hedge funds recently. AMH was in 25 hedge funds' portfolios at the end of June. There were 19 hedge funds in our database with AMH positions at the end of the previous quarter. Our calculations also showed that AMH 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 this former hedge fund manager 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 analyze the new hedge fund action regarding American Homes 4 Rent (NYSE:AMH).
How have hedgies been trading American Homes 4 Rent (NYSE:AMH)?
At Q2's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in AMH a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Echo Street Capital Management held the most valuable stake in American Homes 4 Rent (NYSE:AMH), which was worth $100 million at the end of the second quarter. On the second spot was Zimmer Partners which amassed $90.6 million worth of shares. Moreover, Citadel Investment Group, AEW Capital Management, and Millennium Management were also bullish on American Homes 4 Rent (NYSE:AMH), allocating a large percentage of their portfolios to this stock.
Consequently, specific money managers have been driving this bullishness. Capital Growth Management, managed by Ken Heebner, established the most outsized position in American Homes 4 Rent (NYSE:AMH). Capital Growth Management had $10.2 million invested in the company at the end of the quarter. Daniel Johnson's Gillson Capital also made a $6.3 million investment in the stock during the quarter. The other funds with brand new AMH positions are John Overdeck and David Siegel's Two Sigma Advisors, Mario Gabelli's GAMCO Investors, and Matthew Tewksbury's Stevens Capital Management.
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 Galapagos NV (NASDAQ:GLPG), Albemarle Corporation (NYSE:ALB), FLIR Systems, Inc. (NASDAQ:FLIR), and CAE, Inc. (NYSE:CAE). This group of stocks' market valuations match AMH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLPG,14,97279,-2 ALB,18,202553,-7 FLIR,20,434610,-12 CAE,10,169159,0 Average,15.5,225900,-5.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $454 million in AMH's case. FLIR Systems, Inc. (NASDAQ:FLIR) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks American Homes 4 Rent (NYSE:AMH) is more popular among hedge funds. 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 AMH as the stock returned 6.7% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.