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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Radian Group Inc (NYSE:RDN).
Is RDN stock a buy? Hedge funds were selling. The number of long hedge fund positions went down by 1 in recent months. Radian Group Inc (NYSE:RDN) was in 37 hedge funds' portfolios at the end of December. The all time high for this statistic is 38. Our calculations also showed that RDN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 38 hedge funds in our database with RDN positions at the end of the third quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we're going to take a gander at the new hedge fund action regarding Radian Group Inc (NYSE:RDN).
Do Hedge Funds Think RDN Is A Good Stock To Buy Now?
At the end of December, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in RDN a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Rima Senvest Management held the most valuable stake in Radian Group Inc (NYSE:RDN), which was worth $86.1 million at the end of the fourth quarter. On the second spot was Interval Partners which amassed $56.2 million worth of shares. King Street Capital, Redwood Capital Management, and Arrowstreet Capital 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 Callodine Capital Management allocated the biggest weight to Radian Group Inc (NYSE:RDN), around 8.76% of its 13F portfolio. King Street Capital is also relatively very bullish on the stock, earmarking 8.56 percent of its 13F equity portfolio to RDN.
Seeing as Radian Group Inc (NYSE:RDN) has experienced declining sentiment from hedge fund managers, we can see that there were a few fund managers that elected to cut their entire stakes by the end of the fourth quarter. At the top of the heap, Renaissance Technologies dumped the largest stake of the 750 funds followed by Insider Monkey, valued at about $5 million in stock. Ravi Chopra's fund, Azora Capital, also dropped its stock, about $4.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the fourth quarter.
Let's check out hedge fund activity in other stocks similar to Radian Group Inc (NYSE:RDN). We will take a look at National General Holdings Corp (NASDAQ:NGHC), Olin Corporation (NYSE:OLN), Perspecta Inc. (NYSE:PRSP), Itron, Inc. (NASDAQ:ITRI), Tripadvisor Inc (NASDAQ:TRIP), Hawaiian Electric Industries, Inc. (NYSE:HE), and DCP Midstream LP (NYSE:DCP). This group of stocks' market caps match RDN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NGHC,23,444211,-2 OLN,23,742730,-10 PRSP,37,935354,1 ITRI,6,275348,-9 TRIP,41,1085144,12 HE,18,169156,-1 DCP,3,12973,0 Average,21.6,523559,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $524 million. That figure was $450 million in RDN's case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 3 bullish hedge fund positions. Radian Group Inc (NYSE:RDN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RDN is 77.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and still beat the market by 0.4 percentage points. Hedge funds were also right about betting on RDN as the stock returned 15.6% since the end of Q4 (through 4/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.