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 Walker & Dunlop Inc. (NYSE:WD).
Is Walker & Dunlop Inc. (NYSE:WD) the right pick for your portfolio? The smart money is buying. The number of bullish hedge fund positions went up by 1 recently. Our calculations also showed that WD isn't among the 30 most popular stocks among hedge funds (see the video below). WD was in 15 hedge funds' portfolios at the end of June. There were 14 hedge funds in our database with WD 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a 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 take a glance at the recent hedge fund action regarding Walker & Dunlop Inc. (NYSE:WD).
How are hedge funds trading Walker & Dunlop Inc. (NYSE:WD)?
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in WD 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.
More specifically, Royce & Associates was the largest shareholder of Walker & Dunlop Inc. (NYSE:WD), with a stake worth $15.6 million reported as of the end of March. Trailing Royce & Associates was Miller Value Partners, which amassed a stake valued at $10.6 million. Renaissance Technologies, Alyeska Investment Group, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers were leading the bulls' herd. Miller Value Partners, managed by Bill Miller, established the biggest position in Walker & Dunlop Inc. (NYSE:WD). Miller Value Partners had $10.6 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $7.6 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Peter Algert and Kevin Coldiron's Algert Coldiron Investors, and Roger Ibbotson's Zebra Capital Management.
Let's check out hedge fund activity in other stocks similar to Walker & Dunlop Inc. (NYSE:WD). We will take a look at SSR Mining Inc. (NASDAQ:SSRM), Newmark Group, Inc. (NASDAQ:NMRK), Sogou Inc. (NYSE:SOGO), and Central Garden & Pet Company (NASDAQ:CENT). All of these stocks' market caps match WD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSRM,16,139260,3 NMRK,16,102144,-8 SOGO,5,1243,-3 CENT,19,136104,3 Average,14,94688,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $65 million in WD's case. Central Garden & Pet Company (NASDAQ:CENT) is the most popular stock in this table. On the other hand Sogou Inc. (NYSE:SOGO) is the least popular one with only 5 bullish hedge fund positions. Walker & Dunlop Inc. (NYSE:WD) 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 WD, though not to the same extent, as the stock returned 5.7% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.