The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Walker & Dunlop Inc. (NYSE:WD) based on those filings.
Walker & Dunlop Inc. (NYSE:WD) investors should be aware of a decrease in enthusiasm from smart money recently. Our calculations also showed that WD isn't among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.
[caption id="attachment_88925" align="aligncenter" width="400"] 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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a gander at the latest hedge fund action surrounding Walker & Dunlop Inc. (NYSE:WD).
What does smart money think about Walker & Dunlop Inc. (NYSE:WD)?
At Q1's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in WD over the last 18 quarters. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Sabrepoint Capital, managed by George Baxter, holds the largest position in Walker & Dunlop Inc. (NYSE:WD). Sabrepoint Capital has a $11.1 million position in the stock, comprising 4.5% of its 13F portfolio. On Sabrepoint Capital's heels is Royce & Associates, led by Chuck Royce, holding a $10.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that are bullish consist of Jeff Osher's No Street Capital, Anand Parekh's Alyeska Investment Group and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Sabrepoint Capital allocated the biggest weight to Walker & Dunlop Inc. (NYSE:WD), around 4.49% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, earmarking 1.92 percent of its 13F equity portfolio to WD.
Seeing as Walker & Dunlop Inc. (NYSE:WD) has experienced declining sentiment from the smart money, logic holds that there lies a certain "tier" of fund managers who sold off their full holdings heading into Q4. Interestingly, Bill Miller's Miller Value Partners dumped the biggest investment of all the hedgies watched by Insider Monkey, valued at an estimated $9.6 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 6 funds heading into Q4.
Let's go over hedge fund activity in other stocks similar to Walker & Dunlop Inc. (NYSE:WD). We will take a look at MACOM Technology Solutions Holdings Inc (NASDAQ:MTSI), PRA Group, Inc. (NASDAQ:PRAA), Twist Bioscience Corporation (NASDAQ:TWST), and Knowles Corp (NYSE:KN). This group of stocks' market values match WD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTSI,16,153392,-2 PRAA,14,51314,2 TWST,16,216481,1 KN,20,205594,-9 Average,16.5,156695,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $53 million in WD's case. Knowles Corp (NYSE:KN) is the most popular stock in this table. On the other hand PRA Group, Inc. (NASDAQ:PRAA) is the least popular one with only 14 bullish hedge fund positions. Walker & Dunlop Inc. (NYSE:WD) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on WD, though not to the same extent, as the stock returned 24.4% during the first two months and twenty two days of the second quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.