We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Two Harbors Investment Corp (NYSE:TWO).
Two Harbors Investment Corp (NYSE:TWO) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as LHC Group, Inc. (NASDAQ:LHCG), Chegg Inc (NYSE:CHGG), and LivaNova PLC (NASDAQ:LIVN) to gather more data points. Our calculations also showed that TWO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most shareholders, hedge funds are perceived as underperforming, outdated investment vehicles of yesteryear. While there are more than 8000 funds trading at present, Our experts look at the bigwigs of this group, approximately 750 funds. These hedge fund managers control the lion's share of all hedge funds' total asset base, and by keeping track of their top investments, Insider Monkey has figured out a number of investment strategies that have historically outperformed the broader indices. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_88925" align="aligncenter" width="450"] Bill Miller of Miller Value Partners[/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. Let's review the fresh hedge fund action regarding Two Harbors Investment Corp (NYSE:TWO).
How are hedge funds trading Two Harbors Investment Corp (NYSE:TWO)?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TWO over the last 17 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Two Harbors Investment Corp (NYSE:TWO), which was worth $24.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $11.9 million worth of shares. Winton Capital Management, Millennium Management, and Miller Value Partners 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 Neo Ivy Capital allocated the biggest weight to Two Harbors Investment Corp (NYSE:TWO), around 0.84% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, designating 0.19 percent of its 13F equity portfolio to TWO.
Since Two Harbors Investment Corp (NYSE:TWO) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of hedgies who were dropping their full holdings last quarter. At the top of the heap, David Rodriguez-Fraile's BlueMar Capital Management sold off the biggest investment of the "upper crust" of funds followed by Insider Monkey, valued at close to $4.9 million in stock. Ron Mass's fund, Almitas Capital, also sold off its stock, about $4.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Two Harbors Investment Corp (NYSE:TWO). These stocks are LHC Group, Inc. (NASDAQ:LHCG), Chegg Inc (NYSE:CHGG), LivaNova PLC (NASDAQ:LIVN), and Neogen Corporation (NASDAQ:NEOG). This group of stocks' market caps are closest to TWO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LHCG,27,112140,1 CHGG,32,337398,6 LIVN,13,153754,-3 NEOG,13,24715,1 Average,21.25,157002,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $64 million in TWO's case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand LivaNova PLC (NASDAQ:LIVN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Two Harbors Investment Corp (NYSE:TWO) is even less popular than LIVN. Hedge funds clearly dropped the ball on TWO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on TWO as the stock returned 10.7% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.