The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of NextPoint Residential Trust Inc (NYSE:NXRT) and find out how it is affected by hedge funds' moves.
Hedge fund interest in NextPoint Residential Trust Inc (NYSE:NXRT) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NXRT to other stocks including OFG Bancorp (NYSE:OFG), Canadian Solar Inc. (NASDAQ:CSIQ), and Gossamer Bio, Inc. (NASDAQ:GOSS) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_221556" align="aligncenter" width="450"] Richard Driehaus of Driehaus Capital[/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. We're going to view the key hedge fund action regarding NextPoint Residential Trust Inc (NYSE:NXRT).
What have hedge funds been doing with NextPoint Residential Trust Inc (NYSE:NXRT)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NXRT over the last 17 quarters. With hedgies' capital changing hands, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Highland Capital Management was the largest shareholder of NextPoint Residential Trust Inc (NYSE:NXRT), with a stake worth $115.1 million reported as of the end of September. Trailing Highland Capital Management was Renaissance Technologies, which amassed a stake valued at $58.1 million. Driehaus Capital, Millennium Management, and Citadel Investment Group 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 Highland Capital Management allocated the biggest weight to NextPoint Residential Trust Inc (NYSE:NXRT), around 7.17% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, dishing out 1.27 percent of its 13F equity portfolio to NXRT.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Winton Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was PEAK6 Capital Management).
Let's check out hedge fund activity in other stocks similar to NextPoint Residential Trust Inc (NYSE:NXRT). We will take a look at OFG Bancorp (NYSE:OFG), Canadian Solar Inc. (NASDAQ:CSIQ), Gossamer Bio, Inc. (NASDAQ:GOSS), and TriCo Bancshares (NASDAQ:TCBK). 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 OFG,14,65351,-4 CSIQ,17,115434,4 GOSS,9,161966,-2 TCBK,9,44155,1 Average,12.25,96727,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $203 million in NXRT's case. Canadian Solar Inc. (NASDAQ:CSIQ) is the most popular stock in this table. On the other hand Gossamer Bio, Inc. (NASDAQ:GOSS) is the least popular one with only 9 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 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 NXRT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NXRT investors were disappointed as the stock returned 2.3% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.