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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider NextPoint Residential Trust Inc (NYSE:NXRT) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is NXRT a good stock to buy now? Money managers were taking a pessimistic view. The number of bullish hedge fund positions dropped by 4 in recent months. NextPoint Residential Trust Inc (NYSE:NXRT) was in 9 hedge funds' portfolios at the end of September. The all time high for this statistics is 16. Our calculations also showed that NXRT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Martin Whitman of Third Avenue Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to check out the recent hedge fund action regarding NextPoint Residential Trust Inc (NYSE:NXRT).
Do Hedge Funds Think NXRT Is A Good Stock To Buy Now?
At the end of September, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NXRT over the last 21 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, James Dondero's Highland Capital Management has the most valuable position in NextPoint Residential Trust Inc (NYSE:NXRT), worth close to $32.1 million, comprising 7.3% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, founded by Jim Simons, holding a $30.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions comprise Blair Baker's Precept Capital Management, Martin Whitman's Third Avenue Management and Mika Toikka's AlphaCrest Capital Management. 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 7.25% of its 13F portfolio. Precept Capital Management is also relatively very bullish on the stock, dishing out 0.91 percent of its 13F equity portfolio to NXRT.
Due to the fact that NextPoint Residential Trust Inc (NYSE:NXRT) has experienced falling interest from hedge fund managers, it's easy to see that there was a specific group of money managers that elected to cut their full holdings in the third quarter. At the top of the heap, Ken Griffin's Citadel Investment Group dropped the largest position of all the hedgies monitored by Insider Monkey, comprising an estimated $2.1 million in stock. David Harding's fund, Winton Capital Management, also said goodbye to its stock, about $1.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 4 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to NextPoint Residential Trust Inc (NYSE:NXRT). We will take a look at Deluxe Corporation (NYSE:DLX), Atkore International Group Inc. (NYSE:ATKR), Karyopharm Therapeutics Inc (NASDAQ:KPTI), PC Connection, Inc. (NASDAQ:CNXN), Micro Focus Intl PLC (NYSE:MFGP), Sturm, Ruger & Company (NYSE:RGR), and Methode Electronics Inc. (NYSE:MEI). 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 DLX,20,69029,2 ATKR,17,60246,3 KPTI,21,325726,0 CNXN,4,30286,-4 MFGP,10,18863,-3 RGR,24,181471,-3 MEI,11,68216,-1 Average,15.3,107691,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.3 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $69 million in NXRT's case. Sturm, Ruger & Company (NYSE:RGR) is the most popular stock in this table. On the other hand PC Connection, Inc. (NASDAQ:CNXN) is the least popular one with only 4 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. Our overall hedge fund sentiment score for NXRT is 30.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 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 0.4% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.