While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors kept their optimism regarding the current bull run in the fourth quarter, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, 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 NextPoint Residential Trust Inc (NYSE:NXRT).
NextPoint Residential Trust Inc (NYSE:NXRT) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of the fourth quarter of 2018. At the end of this article we will also compare NXRT to other stocks including Chatham Lodging Trust (NYSE:CLDT), Duluth Holdings Inc. (NASDAQ:DLTH), and Washington Trust Bancorp (NASDAQ:WASH) to get a better sense of its popularity.
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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a glance at the recent hedge fund action regarding NextPoint Residential Trust Inc (NYSE:NXRT).
What have hedge funds been doing with NextPoint Residential Trust Inc (NYSE:NXRT)?
Heading into the first quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NXRT over the last 14 quarters. 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, Highland Capital Management held the most valuable stake in NextPoint Residential Trust Inc (NYSE:NXRT), which was worth $79.2 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $46.2 million worth of shares. Moreover, GLG Partners, Millennium Management, and PEAK6 Capital Management were also bullish on NextPoint Residential Trust Inc (NYSE:NXRT), allocating a large percentage of their portfolios to this stock.
Due to the fact that NextPoint Residential Trust Inc (NYSE:NXRT) has witnessed declining sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of money managers who sold off their positions entirely in the third quarter. Interestingly, Martin Whitman's Third Avenue Management sold off the largest stake of the 700 funds tracked by Insider Monkey, worth an estimated $0.6 million in stock. Jeffrey Talpins's fund, Element Capital Management, also cut its stock, about $0.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as NextPoint Residential Trust Inc (NYSE:NXRT) but similarly valued. We will take a look at Chatham Lodging Trust (NYSE:CLDT), Duluth Holdings Inc. (NASDAQ:DLTH), Washington Trust Bancorp, Inc. (NASDAQ:WASH), and National Presto Industries Inc. (NYSE:NPK). All of these stocks' market caps are similar to NXRT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLDT,10,44534,3 DLTH,8,12500,-2 WASH,6,24910,-2 NPK,13,94747,3 Average,9.25,44173,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $140 million in NXRT's case. National Presto Industries Inc. (NYSE:NPK) is the most popular stock in this table. On the other hand Washington Trust Bancorp, Inc. (NASDAQ:WASH) is the least popular one with only 6 bullish hedge fund positions. NextPoint Residential Trust Inc (NYSE:NXRT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately NXRT wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); NXRT investors were disappointed as the stock returned 1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.