There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Starwood Property Trust, Inc. (NYSE:STWD).
Starwood Property Trust, Inc. (NYSE:STWD) was in 14 hedge funds' portfolios at the end of the second quarter of 2019. STWD has experienced a decrease in enthusiasm from smart money recently. There were 15 hedge funds in our database with STWD holdings at the end of the previous quarter. Our calculations also showed that STWD isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the fresh hedge fund action regarding Starwood Property Trust, Inc. (NYSE:STWD).
What have hedge funds been doing with Starwood Property Trust, Inc. (NYSE:STWD)?
At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in STWD a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Starwood Property Trust, Inc. (NYSE:STWD) was held by Cardinal Capital, which reported holding $39.8 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $33.2 million position. Other investors bullish on the company included Clough Capital Partners, Waterfront Capital Partners, and Cobalt Capital Management.
Seeing as Starwood Property Trust, Inc. (NYSE:STWD) has faced falling interest from hedge fund managers, logic holds that there exists a select few funds who sold off their full holdings in the second quarter. Intriguingly, Renaissance Technologies sold off the biggest investment of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $3.9 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund dumped about $0.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to Starwood Property Trust, Inc. (NYSE:STWD). These stocks are Nektar Therapeutics (NASDAQ:NKTR), Jones Lang LaSalle Inc (NYSE:JLL), Encompass Health Corporation (NYSE:EHC), and Sabre Corporation (NASDAQ:SABR). This group of stocks' market valuations match STWD's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NKTR,19,228273,2 JLL,23,984740,0 EHC,23,507276,-1 SABR,12,140283,-9 Average,19.25,465143,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $465 million. That figure was $136 million in STWD's case. Jones Lang LaSalle Inc (NYSE:JLL) is the most popular stock in this table. On the other hand Sabre Corporation (NASDAQ:SABR) is the least popular one with only 12 bullish hedge fund positions. Starwood Property Trust, Inc. (NYSE:STWD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on STWD as the stock returned 8.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.