At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Mr. Cooper Group Inc. (NASDAQ:COOP).
Mr. Cooper Group Inc. (NASDAQ:COOP) shareholders have witnessed a decrease in support from the world's most elite money managers lately. COOP was in 19 hedge funds' portfolios at the end of the first quarter of 2020. There were 23 hedge funds in our database with COOP positions at the end of the previous quarter. Our calculations also showed that COOP 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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.
[caption id="attachment_258176" align="aligncenter" width="396"] Leon Cooperman of Omega Advisors[/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. Now let's take a look at the recent hedge fund action encompassing Mr. Cooper Group Inc. (NASDAQ:COOP).
How have hedgies been trading Mr. Cooper Group Inc. (NASDAQ:COOP)?
At Q1's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards COOP over the last 18 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the number one position in Mr. Cooper Group Inc. (NASDAQ:COOP). Diamond Hill Capital has a $48.3 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Omega Advisors, led by Leon Cooperman, holding a $29.2 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish include Jonathan Savitz's Greywolf Capital Management, Eric Schneider's OCO Capital Partners and Howard Marks's Oaktree Capital Management. In terms of the portfolio weights assigned to each position Greywolf Capital Management allocated the biggest weight to Mr. Cooper Group Inc. (NASDAQ:COOP), around 54.88% of its 13F portfolio. OCO Capital Partners is also relatively very bullish on the stock, dishing out 26.01 percent of its 13F equity portfolio to COOP.
Since Mr. Cooper Group Inc. (NASDAQ:COOP) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of hedgies who sold off their positions entirely last quarter. It's worth mentioning that Renaissance Technologies said goodbye to the biggest position of all the hedgies watched by Insider Monkey, valued at an estimated $1.7 million in stock, and Peter Algert and Kevin Coldiron's Algert Coldiron Investors was right behind this move, as the fund dumped about $1.7 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Mr. Cooper Group Inc. (NASDAQ:COOP). We will take a look at Nordic American Tankers Ltd (NYSE:NAT), Photronics, Inc. (NASDAQ:PLAB), PAE Incorporated (NASDAQ:PAE), and BRP Group, Inc. (NASDAQ:BRP). This group of stocks' market caps resemble COOP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NAT,12,25618,-2 PLAB,22,89664,1 PAE,21,124295,9 BRP,2,9815,-6 Average,14.25,62348,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $178 million in COOP's case. Photronics, Inc. (NASDAQ:PLAB) is the most popular stock in this table. On the other hand BRP Group, Inc. (NASDAQ:BRP) is the least popular one with only 2 bullish hedge fund positions. Mr. Cooper Group Inc. (NASDAQ:COOP) 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 COOP as the stock returned 80.2% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.