Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Invesco Mortgage Capital Inc (NYSE:IVR)? The smart money sentiment can provide an answer to this question.
Is Invesco Mortgage Capital Inc (NYSE:IVR) a splendid investment now? The best stock pickers are taking an optimistic view. The number of long hedge fund positions advanced by 6 lately. Our calculations also showed that IVR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's view the latest hedge fund action surrounding Invesco Mortgage Capital Inc (NYSE:IVR).
How have hedgies been trading Invesco Mortgage Capital Inc (NYSE:IVR)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 55% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in IVR a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the largest position in Invesco Mortgage Capital Inc (NYSE:IVR), worth close to $27.6 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Balyasny Asset Management, led by Dmitry Balyasny, holding a $11.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions comprise Ken Griffin's Citadel Investment Group, Anand Parekh's Alyeska Investment Group and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Neo Ivy Capital allocated the biggest weight to Invesco Mortgage Capital Inc (NYSE:IVR), around 0.81% of its 13F portfolio. Alyeska Investment Group is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to IVR.
Now, key hedge funds were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, established the most outsized position in Invesco Mortgage Capital Inc (NYSE:IVR). Alyeska Investment Group had $9.8 million invested in the company at the end of the quarter. Gregg Moskowitz's Interval Partners also made a $2.9 million investment in the stock during the quarter. The following funds were also among the new IVR investors: David E. Shaw's D E Shaw, Minhua Zhang's Weld Capital Management, and Donald Sussman's Paloma Partners.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Invesco Mortgage Capital Inc (NYSE:IVR) but similarly valued. We will take a look at Innospec Inc. (NASDAQ:IOSP), Zai Lab Limited (NASDAQ:ZLAB), Amkor Technology, Inc. (NASDAQ:AMKR), and Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). This group of stocks' market caps match IVR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IOSP,19,98572,6 ZLAB,21,264048,4 AMKR,25,116243,6 BHVN,34,455638,-4 Average,24.75,233625,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $234 million. That figure was $85 million in IVR's case. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is the most popular stock in this table. On the other hand Innospec Inc. (NASDAQ:IOSP) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Invesco Mortgage Capital Inc (NYSE:IVR) is even less popular than IOSP. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on IVR, though not to the same extent, as the stock returned 6.1% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.