Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Annaly Capital Management, Inc. (NYSE:NLY) based on that data.
Annaly Capital Management, Inc. (NYSE:NLY) was in 27 hedge funds' portfolios at the end of March. NLY has experienced an increase in hedge fund interest lately. There were 21 hedge funds in our database with NLY positions at the end of the previous quarter. Our calculations also showed that NLY isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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 stocks that are in our short portfolio.
[caption id="attachment_26575" align="aligncenter" width="400"] Louis Bacon Moore of Moore Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the latest hedge fund action surrounding Annaly Capital Management, Inc. (NYSE:NLY).
What have hedge funds been doing with Annaly Capital Management, Inc. (NYSE:NLY)?
At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in NLY a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Annaly Capital Management, Inc. (NYSE:NLY), which was worth $60.3 million at the end of the third quarter. On the second spot was D E Shaw which amassed $54.4 million worth of shares. Citadel Investment Group, King Street Capital, and Point72 Asset 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 One Fin Capital Management allocated the biggest weight to Annaly Capital Management, Inc. (NYSE:NLY), around 5.38% of its 13F portfolio. King Street Capital is also relatively very bullish on the stock, setting aside 2.83 percent of its 13F equity portfolio to NLY.
As aggregate interest increased, specific money managers were breaking ground themselves. King Street Capital, managed by Brian J. Higgins, established the largest position in Annaly Capital Management, Inc. (NYSE:NLY). King Street Capital had $25.4 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $18.9 million position during the quarter. The other funds with new positions in the stock are Louis Bacon's Moore Global Investments, David MacKnight's One Fin Capital Management, and Bill Miller's Miller Value Partners.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Annaly Capital Management, Inc. (NYSE:NLY) but similarly valued. These stocks are Henry Schein, Inc. (NASDAQ:HSIC), Centrais Eletricas Brasileiras SA (NYSE:EBR), Avantor, Inc. (NYSE:AVTR), and Ceridian HCM Holding Inc. (NYSE:CDAY). This group of stocks' market caps match NLY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HSIC,35,1058541,-1 EBR,5,9710,-2 AVTR,29,521496,1 CDAY,24,1189081,-7 Average,23.25,694707,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $695 million. That figure was $225 million in NLY's case. Henry Schein, Inc. (NASDAQ:HSIC) is the most popular stock in this table. On the other hand Centrais Eletricas Brasileiras SA (NYSE:EBR) is the least popular one with only 5 bullish hedge fund positions. Annaly Capital Management, Inc. (NYSE:NLY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on NLY as the stock returned 21.5% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.