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 Redwood Trust, Inc. (NYSE:RWT).
Redwood Trust, Inc. (NYSE:RWT) was in 22 hedge funds' portfolios at the end of March. RWT shareholders have witnessed an increase in enthusiasm from smart money of late. There were 13 hedge funds in our database with RWT holdings at the end of the previous quarter. Our calculations also showed that RWT 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.
According to most investors, hedge funds are viewed as underperforming, outdated financial tools of the past. While there are greater than 8000 funds in operation at present, Our researchers look at the masters of this group, approximately 850 funds. These money managers handle bulk of all hedge funds' total asset base, and by paying attention to their first-class equity investments, Insider Monkey has unearthed a number of investment strategies that have historically surpassed the broader indices. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_221556" align="aligncenter" width="400"] Richard Driehaus of Driehaus Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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. With all of this in mind let's take a look at the recent hedge fund action regarding Redwood Trust, Inc. (NYSE:RWT).
How have hedgies been trading Redwood Trust, Inc. (NYSE:RWT)?
At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 69% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RWT over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Wallace R. Weitz & Co. held the most valuable stake in Redwood Trust, Inc. (NYSE:RWT), which was worth $18.1 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $13.8 million worth of shares. OCO Capital Partners, Adage Capital Management, and HBK Investments 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 OCO Capital Partners allocated the biggest weight to Redwood Trust, Inc. (NYSE:RWT), around 12.38% of its 13F portfolio. Wallace R. Weitz & Co. is also relatively very bullish on the stock, setting aside 0.96 percent of its 13F equity portfolio to RWT.
As aggregate interest increased, some big names have been driving this bullishness. OCO Capital Partners, managed by Eric Schneider, created the largest position in Redwood Trust, Inc. (NYSE:RWT). OCO Capital Partners had $10.1 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also made a $7.6 million investment in the stock during the quarter. The following funds were also among the new RWT investors: David Costen Haley's HBK Investments, Richard Driehaus's Driehaus Capital, and Warren Lammert's Granite Point Capital.
Let's also examine hedge fund activity in other stocks similar to Redwood Trust, Inc. (NYSE:RWT). These stocks are Greenbrier Companies Inc (NYSE:GBX), TechTarget Inc (NASDAQ:TTGT), Owens & Minor, Inc. (NYSE:OMI), and Brookdale Senior Living, Inc. (NYSE:BKD). This group of stocks' market values are closest to RWT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GBX,8,13726,-4 TTGT,14,60057,-2 OMI,16,70459,5 BKD,17,236242,-5 Average,13.75,95121,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $67 million in RWT's case. Brookdale Senior Living, Inc. (NYSE:BKD) is the most popular stock in this table. On the other hand Greenbrier Companies Inc (NYSE:GBX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Redwood Trust, Inc. (NYSE:RWT) is more popular among hedge funds. 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 returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on RWT as the stock returned 41.5% so far in Q2 (through June 10th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.