Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Mr. Cooper Group Inc. (NASDAQ:COOP) a sound investment now? Hedge funds are becoming less confident. The number of bullish hedge fund positions fell by 4 in recent months. Our calculations also showed that COOP isn't among the 30 most popular stocks among hedge funds (see the video below). COOP was in 23 hedge funds' portfolios at the end of the second quarter of 2019. There were 27 hedge funds in our database with COOP holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most market participants, hedge funds are perceived as worthless, outdated financial tools of years past. While there are greater than 8000 funds in operation today, Our experts look at the moguls of this club, approximately 750 funds. These investment experts manage bulk of the hedge fund industry's total capital, and by observing their finest investments, Insider Monkey has brought to light a few investment strategies that have historically surpassed Mr. Market. Insider Monkey's flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
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. We're going to take a glance at the latest hedge fund action regarding Mr. Cooper Group Inc. (NASDAQ:COOP).
Hedge fund activity in Mr. Cooper Group Inc. (NASDAQ:COOP)
At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in COOP a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Diamond Hill Capital was the largest shareholder of Mr. Cooper Group Inc. (NASDAQ:COOP), with a stake worth $68.9 million reported as of the end of March. Trailing Diamond Hill Capital was Greywolf Capital Management, which amassed a stake valued at $43.3 million. Rubric Capital Management, Serengeti Asset Management, and Oaktree Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Mr. Cooper Group Inc. (NASDAQ:COOP) has witnessed bearish sentiment from the aggregate hedge fund industry, it's easy to see that there is a sect of hedge funds who were dropping their entire stakes by the end of the second quarter. It's worth mentioning that Tony Davis's Inherent Group dumped the largest investment of the 750 funds tracked by Insider Monkey, worth about $21.9 million in stock. Emanuel J. Friedman's fund, EJF Capital, also dropped its stock, about $4.5 million worth. These transactions are important to note, as total hedge fund interest fell by 4 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Mr. Cooper Group Inc. (NASDAQ:COOP) but similarly valued. We will take a look at AK Steel Holding Corporation (NYSE:AKS), Diebold Nixdorf Incorporated (NYSE:DBD), Schnitzer Steel Industries, Inc. (NASDAQ:SCHN), and William Lyon Homes (NYSE:WLH). All of these stocks' market caps match COOP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AKS,14,25987,1 DBD,15,128905,-3 SCHN,12,28629,-2 WLH,24,151171,1 Average,16.25,83673,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $237 million in COOP's case. William Lyon Homes (NYSE:WLH) is the most popular stock in this table. On the other hand Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) is the least popular one with only 12 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 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. Hedge funds were also right about betting on COOP as the stock returned 32.6% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
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