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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Starwood Property Trust, Inc. (NYSE:STWD) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is STWD a good stock to buy now? Money managers were becoming less confident. The number of long hedge fund positions dropped by 5 in recent months. Starwood Property Trust, Inc. (NYSE:STWD) was in 17 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 27. Our calculations also showed that STWD isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Keeping this in mind we're going to take a gander at the fresh hedge fund action encompassing Starwood Property Trust, Inc. (NYSE:STWD).
Do Hedge Funds Think STWD Is A Good Stock To Buy Now?
At the end of September, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the second quarter of 2020. On the other hand, there were a total of 20 hedge funds with a bullish position in STWD a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cardinal Capital, managed by Amy Minella, holds the most valuable position in Starwood Property Trust, Inc. (NYSE:STWD). Cardinal Capital has a $65.8 million position in the stock, comprising 2.7% of its 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $11.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish encompass D. E. Shaw's D E Shaw, Daniel Beltzman and Gergory Smith's Birch Run Capital and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Birch Run Capital allocated the biggest weight to Starwood Property Trust, Inc. (NYSE:STWD), around 3.15% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, dishing out 2.75 percent of its 13F equity portfolio to STWD.
Since Starwood Property Trust, Inc. (NYSE:STWD) has witnessed a decline in interest from hedge fund managers, it's easy to see that there was a specific group of funds that decided to sell off their positions entirely heading into Q4. Intriguingly, Ken Griffin's Citadel Investment Group dropped the biggest position of the 750 funds tracked by Insider Monkey, totaling close to $22.7 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also cut its stock, about $19.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Starwood Property Trust, Inc. (NYSE:STWD) but similarly valued. We will take a look at Ashland Global Holdings Inc.. (NYSE:ASH), China Biologic Products Holdings Inc (NASDAQ:CBPO), Silicon Laboratories Inc. (NASDAQ:SLAB), Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), Agora, Inc. (NASDAQ:API), Manpowergroup Inc (NYSE:MAN), and Cousins Properties Incorporated (NYSE:CUZ). This group of stocks' market values are closest to STWD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASH,46,1104849,14 CBPO,18,848680,-5 SLAB,26,99748,-2 SHI,3,10098,0 API,24,116132,-5 MAN,34,408974,0 CUZ,13,83776,-6 Average,23.4,381751,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $382 million. That figure was $94 million in STWD's case. Ashland Global Holdings Inc.. (NYSE:ASH) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is the least popular one with only 3 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 overall hedge fund sentiment score for STWD is 35.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on STWD as the stock returned 25.4% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.