Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards IMPAC Mortgage Holdings, Inc (NYSE:IMH).
Is IMPAC Mortgage Holdings, Inc (NYSE:IMH) a healthy stock for your portfolio? Prominent investors are getting more bullish. The number of bullish hedge fund bets went up by 1 lately. Our calculations also showed that IMH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). IMH was in 5 hedge funds' portfolios at the end of the third quarter of 2019. There were 4 hedge funds in our database with IMH positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's take a peek at the recent hedge fund action regarding IMPAC Mortgage Holdings, Inc (NYSE:IMH).
What have hedge funds been doing with IMPAC Mortgage Holdings, Inc (NYSE:IMH)?
At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IMH over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Israel Englander's Millennium Management has the most valuable position in IMPAC Mortgage Holdings, Inc (NYSE:IMH), worth close to $0.8 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Ellington, managed by Mike Vranos, which holds a $0.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions consist of Renaissance Technologies, Paul Tudor Jones's Tudor Investment Corp and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners. In terms of the portfolio weights assigned to each position Ellington allocated the biggest weight to IMPAC Mortgage Holdings, Inc (NYSE:IMH), around 0.07% of its 13F portfolio. LMR Partners is also relatively very bullish on the stock, setting aside 0.0041 percent of its 13F equity portfolio to IMH.
Now, specific money managers have jumped into IMPAC Mortgage Holdings, Inc (NYSE:IMH) headfirst. Renaissance Technologies established the most outsized position in IMPAC Mortgage Holdings, Inc (NYSE:IMH). Renaissance Technologies had $0.1 million invested in the company at the end of the quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as IMPAC Mortgage Holdings, Inc (NYSE:IMH) but similarly valued. These stocks are Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), Taiwan Liposome Company, Ltd. (NASDAQ:TLC), Dyadic International, Inc. (NASDAQ:DYAI), and Anavex Life Sciences Corp. (NASDAQ:AVXL). All of these stocks' market caps are closest to IMH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNST,8,27123,0 TLC,1,474,0 DYAI,2,6251,-1 AVXL,4,13051,-1 Average,3.75,11725,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $2 million in IMH's case. Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) is the most popular stock in this table. On the other hand Taiwan Liposome Company, Ltd. (NASDAQ:TLC) is the least popular one with only 1 bullish hedge fund positions. IMPAC Mortgage Holdings, Inc (NYSE:IMH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately IMH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on IMH were disappointed as the stock returned -26.9% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.