"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards NexPoint Residential Trust Inc (NYSE:NXRT) and see how it was affected.
NexPoint Residential Trust Inc (NYSE:NXRT) was in 10 hedge funds' portfolios at the end of the first quarter of 2019. NXRT has experienced an increase in activity from the world's largest hedge funds in recent months. There were 9 hedge funds in our database with NXRT holdings at the end of the previous quarter. Our calculations also showed that NXRT isn't among the 30 most popular stocks among hedge funds.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to check out the latest hedge fund action encompassing NexPoint Residential Trust Inc (NYSE:NXRT).
Hedge fund activity in NexPoint Residential Trust Inc (NYSE:NXRT)
Heading into the second quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NXRT over the last 15 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Highland Capital Management was the largest shareholder of NexPoint Residential Trust Inc (NYSE:NXRT), with a stake worth $80.3 million reported as of the end of March. Trailing Highland Capital Management was Renaissance Technologies, which amassed a stake valued at $49.9 million. Millennium Management, GLG Partners, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds were leading the bulls' herd. Bailard Inc, managed by Thomas Bailard, assembled the largest position in NexPoint Residential Trust Inc (NYSE:NXRT). Bailard Inc had $0.4 million invested in the company at the end of the quarter. Bruce Kovner's Caxton Associates LP also initiated a $0.4 million position during the quarter. The following funds were also among the new NXRT investors: David Harding's Winton Capital Management and Roger Ibbotson's Zebra Capital Management.
Let's check out hedge fund activity in other stocks similar to NexPoint Residential Trust Inc (NYSE:NXRT). We will take a look at Precision BioSciences, Inc. (NASDAQ:DTIL), Golar LNG Partners LP (NASDAQ:GMLP), Atlantic Tele-Network, Inc. (NASDAQ:ATNI), and Turning Point Brands, Inc. (NYSE:TPB). This group of stocks' market valuations are closest to NXRT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DTIL,14,91003,14 GMLP,4,35267,0 ATNI,10,59750,0 TPB,16,45282,6 Average,11,57826,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $146 million in NXRT's case. Turning Point Brands, Inc. (NYSE:TPB) is the most popular stock in this table. On the other hand Golar LNG Partners LP (NASDAQ:GMLP) is the least popular one with only 4 bullish hedge fund positions. NexPoint Residential Trust Inc (NYSE:NXRT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on NXRT, though not to the same extent, as the stock returned 5.9% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.