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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Two Harbors Investment Corp (NYSE:TWO).
Is Two Harbors Investment Corp (NYSE:TWO) a buy, sell, or hold? Money managers were buying. The number of long hedge fund bets advanced by 14 lately. Two Harbors Investment Corp (NYSE:TWO) was in 32 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 24. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TWO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 18 hedge funds in our database with TWO positions at the end of the fourth quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
David Siegel of Two Sigma Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let's take a peek at the key hedge fund action surrounding Two Harbors Investment Corp (NYSE:TWO).
Do Hedge Funds Think TWO Is A Good Stock To Buy Now?
At first quarter's end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 78% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TWO over the last 23 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, John Overdeck and David Siegel's Two Sigma Advisors has the largest position in Two Harbors Investment Corp (NYSE:TWO), worth close to $29.2 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $18 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism include Stuart J. Zimmer's Zimmer Partners, and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Cadian Capital allocated the biggest weight to Two Harbors Investment Corp (NYSE:TWO), around 0.37% of its 13F portfolio. Angelo Gordon & Co is also relatively very bullish on the stock, dishing out 0.22 percent of its 13F equity portfolio to TWO.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Zimmer Partners, managed by Stuart J. Zimmer, created the most outsized position in Two Harbors Investment Corp (NYSE:TWO). Zimmer Partners had $13.2 million invested in the company at the end of the quarter. Daniel S. Och's OZ Management also initiated a $11.3 million position during the quarter. The other funds with new positions in the stock are Israel Englander's Millennium Management, Anand Parekh's Alyeska Investment Group, and Eric Bannasch's Cadian Capital.
Let's also examine hedge fund activity in other stocks similar to Two Harbors Investment Corp (NYSE:TWO). These stocks are California Resources Corporation (NYSE:CRC), Piper Sandler Companies (NYSE:PIPR), Seacoast Banking Corporation of Florida (NASDAQ:SBCF), Itau CorpBanca (NYSE:ITCB), Patrick Industries, Inc. (NASDAQ:PATK), Revance Therapeutics Inc (NASDAQ:RVNC), and Arcus Biosciences, Inc. (NYSE:RCUS). This group of stocks' market values are closest to TWO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRC,23,602869,3 PIPR,12,48846,0 SBCF,9,38337,5 ITCB,2,2047,1 PATK,14,119676,-4 RVNC,10,144559,-2 RCUS,27,375730,-4 Average,13.9,190295,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $200 million in TWO's case. Arcus Biosciences, Inc. (NYSE:RCUS) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Two Harbors Investment Corp (NYSE:TWO) is more popular among hedge funds. Our overall hedge fund sentiment score for TWO is 90. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and still beat the market by 6 percentage points. Unfortunately TWO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TWO were disappointed as the stock returned 4% since the end of the first quarter (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.