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Individual investors do not usually have the necessary resources to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis that leads to poor returns on aggregate. Since stock returns aren't usually evenly distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving the S&P 500 Index's returns in recent years), more than 50% of stocks in the S&P 500 underperform the benchmark. Hence, if you randomly pick a stock, there is a greater than 50% chance that you'll fail to beat the market. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 15.1% over the last 12 months (vs. a 5.6% gain for the SPY), with 53% of these stocks outperforming the benchmark. Hedge funds do make some bad bets but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Arlington Asset Investment Corp (NYSE:AI).
Hedge fund interest in Arlington Asset Investment Corp (NYSE:AI) shares was flat during the last quarter. A couple of the stock's biggest bulls were buying shares however. Billionaire Ken Griffin's Citadel Investment raised its position by 139% to 1.03 million shares during Q2. After opening a small position in the stock in Q1, Mike Vranos' Ellington raised the size of that holding by another 636% in Q2, to 105,000 shares. It's not just hedge funds that are interested in Arlington. The company's own insiders have been buying up shares lately, which were hit hard in October like those of so many other stocks. Arlington landed on our countdown of The 25 Biggest Insider Purchases in October, as President and CEO J. Rick Tonkel Jr. bought 10,000 shares of the company on October 3.
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Ken Griffin of Citadel Investment[/caption]
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 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.