Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
PennyMac Mortgage Investment Trust (NYSE:PMT) was in 13 hedge funds’ portfolios at the end of September. PMT has experienced a decrease in hedge fund sentiment of late. There were 14 hedge funds in our database with PMT holdings at the end of the previous quarter. Our calculations also showed that PMT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the fresh hedge fund action encompassing PennyMac Mortgage Investment Trust (NYSE:PMT).
How are hedge funds trading PennyMac Mortgage Investment Trust (NYSE:PMT)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the second quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in PMT 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, Renaissance Technologies held the most valuable stake in PennyMac Mortgage Investment Trust (NYSE:PMT), which was worth $16.7 million at the end of the third quarter. On the second spot was Marshall Wace which amassed $15.6 million worth of shares. Millennium Management, Clough Capital Partners, and Winton Capital Management 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 Clough Capital Partners allocated the biggest weight to PennyMac Mortgage Investment Trust (NYSE:PMT), around 1.03% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.16 percent of its 13F equity portfolio to PMT.
Judging by the fact that PennyMac Mortgage Investment Trust (NYSE:PMT) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of hedge funds that slashed their full holdings in the third quarter. It’s worth mentioning that Mike Vranos’s Ellington sold off the biggest stake of the 750 funds monitored by Insider Monkey, worth an estimated $1.9 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also sold off its stock, about $1.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to PennyMac Mortgage Investment Trust (NYSE:PMT). We will take a look at Banner Corporation (NASDAQ:BANR), JELD-WEN Holding, Inc. (NYSE:JELD), SJW Corp. (NYSE:SJW), and Hillenbrand, Inc. (NYSE:HI). This group of stocks’ market caps resemble PMT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BANR | 13 | 78632 | -3 |
| JELD | 14 | 284352 | -2 |
| SJW | 19 | 175295 | 4 |
| HI | 22 | 122793 | 4 |
| Average | 17 | 165268 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $165 million. That figure was $75 million in PMT’s case. Hillenbrand, Inc. (NYSE:HI) is the most popular stock in this table. On the other hand Banner Corporation (NASDAQ:BANR) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks PennyMac Mortgage Investment Trust (NYSE:PMT) is even less popular than BANR. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on PMT, though not to the same extent, as the stock returned 6.1% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
